Where’s the Beef? Despite Predictions, Premiums Advance Only 3.3 Percent

Maybe next year? Despite gloomy predictions of a return to double-digit premium increases and such highly publicized incidents as the CalPERS-Kaiser snit, health plan premiums have risen only 3.3 percent in the past 12 months, according to findings by KPMG Peat Marwick’s compensation and benefits practice.

The consulting firm says two strong undercurrents have held premiums at bay: lower health care inflation, and the fact that the market is still price-sensitive. Premiums will rise if health plans abandon their fixation on price, as many believe is beginning to happen, and if plans give in to demands for coverage of costly new drugs.

New Drugs, Greater Utilization Drive Rx Costs

Speaking of pharmaceutical costs, an analysis by Express Scripts/ValueRx, the pharmacy benefit management company, points to new products and increased prescription-drug consumption as factors behind soaring pharmacy expenses.

According to the report, prescription drug costs rose 16.1 percent in 1997, the biggest boost in five years. That hike is led by newer agents, which accounted for only 16.8 percent of utilization, but for 30.6 percent of total drug costs.

Drug Makers Put Half of Ad Money Into Television

When the U.S. Food & Drug Administration eased the rules for direct-to-consumer advertising last August, there was speculation that pharmaceutical manufacturers would take full advantage of the opportunity. Bull’s-eye.

Scott-Levin, the health care consultant, says half of drug manufacturers’ ad dollars were spent on television during the first two months of 1998 — almost double the pace set in 1997. And IMS Health, which tracks drug trends, predicts all spending on direct-to-consumer advertising will reach $1.3 million in 1998, 50 percent more than in 1997.

Not surprisingly, IMS found corresponding increases in patient requests for specific drugs. In response, managed care plans are redoubling physician education efforts about formularies.

In a speech to health care and business leaders, Richard Waltermire, R.Ph., a senior vice president for Pharmacy Gold, the pharmacy benefit management company, warned that direct-to-consumer ads play down drugs’ side effects and raise unrealistic consumer expectations about quality of life.

But whether TV advertising affects prescribing is still a matter of debate. In the Scott-Levin audit, 60 percent of doctors said direct-to-consumer ads are not always reliable sources of information.

Headlines on Deadline…

According to a Milliman & Robertson study, 55 percent of all Medicare inpatient hospital days were potentially unnecessary in 1996. Basing its calculations on its own length-of-stay and admission guidelines, M&R concluded that the average LOS could have been reduced from 6.4 to 4.1 days, and that 43 percent of admissions were unneeded… An independent auditor for the American Association of Health Plans says a third of its members are not in full compliance with its Code of Conduct, formerly the Putting Patients First initiative. AAHP offers that 95 percent comply with six of the code’s seven principles, and that all promise full compliance within a year. When it launched Putting Patients First, AAHP promised to kick out members that did not adhere to its standards.

What’s the risk in risk?

Risk-sharing arrangements account for 31 and 48 percent of all HMO commercial and Medicare revenue, respectively. Hospitalization is the service most often placed at risk.

Color chart


And now, a ‘report card’ from the doctors

When the Pacific Business Group on Health contracts with health plans, it places 2 percent of the premium at risk to promote cooperation between plans and providers. If a plan meets specified targets for “partnering,” as PBGH calls it, the plan keeps the portion of the premium at risk. How well do plans meet that goal? According to a PBGH survey of medical groups and independent practice associations in four states, HMOs’ relationships with physicians are improving, but there is still a need for closer collaboration.

Color chart

Physicians were asked to rate the following health plans: In Arizona, Aetna, Blue Cross Blue Shield, Cigna Network Model, HealthPartners, Humana, Intergroup, PacifiCare and United HealthCare; in California, Aetna, Blue Cross CaliforniaCare, Blue Shield, Care America, Cigna, FHP, Foundation, Health Net, PacifiCare and Prudential; in Oregon, HMO Oregon, Providence Good Health Plan, SelectCare, QualMed and PacifiCare; in Washington, Health Plus, First Choice, Providence Good Health Plan, Group Health Northwest, QualMed and PacifiCare. Kaiser Permanente, with its single physician group, was not part of the survey.

Our most popular topics on Managedcaremag.com