9 August 2012

California Edition
Calendar
August 13-15
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SPD Costs Dog Molina, Health Net

Higher-Than-Projected Expenses Stunt Earnings
The expansion of Medicaid in the coming years could prove a boon to the bottom lines of Woodland Hills-based insurer Health Net and Long Beach-based Molina Healthcare. But for the moment, the portion of the federal program that provides health coverage to the elderly and disabled populations is a drag on the earnings of both health plans. Although Health Net remained protable, it is struggling with cost issues surrounding its Medi-Cal seniors and persons with disabilities (SPD) population, as well as some of its large group commercial accounts. As a result, its net income for the second quarter ending June 30 excluding a one-time asset sale dropped more than 90%. Meanwhile, Molina posted a signicant loss for the same time period, also due to SPD struggles. Altogether, Molina posted a net loss of $37.3 million on revenues of $1.53 billion. That compares to net income of $17.4 million on revenues of $1.13 billion for the second quarter of 2011. Company ofcials blame the loss on spiraling costs in Texas, one of its newest markets where it is providing Medicaid managed care services. It is currently losing $14 million a month on its operations in the Lone Star State. According to Molina, the medical loss ratio was 109.4% in Texas during the quarter, compared to 95% during the second quarter of 2011. Its premium reserve for Texas was decient by $10 million. Molina pinpointed the losses to its contracts in the Hidalgo and El Paso service areas. It said the costs of providing long-term care and adult day healthcare services for the SPD populations far exceeded original estimates. Medical loss ratios for those populations hit 149% in El Paso and 146% in Hidalgo. The Supreme Courts decision upholding many aspects of the Affordable Care Act make it clear that our companys revenue potential is far greater than it ever has been, said Molina Chief Executive Ofcer J. Mario Molina, M.D. However, developments in Texas during the second quarter emphasize the importance of adequate rates and disciplined cost control for new populations and markets. Molina ofcials said that a 6% annual rate increase Texas would enact on Sept. 1 and its own cost containment measures would return the plan to protability during 2013. The news was slightly brighter at Health Net, which remained in the black.
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August 19-21
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September 9-11
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WEBINAR

Wednesday, August 15, 2012

10 A.M., PDT

CALIFORNIA HEALTH BENEFIT EXCHANGE: A PROGRESS REPORT

E-Mail info@payersandproviders.com with the details of your event, or call (877) 248-2360, ext. 3. It will be published in the Calendar section, space permitting.

Please join David Panush, director of government relations, the California Health Benefits Exchange, Anthony Wright, executive director, Health Access, and Jon Gabel, senior fellow, NORC/University of Chicago, to discuss the next major step in the implementation of the Affordable Care Act in California.

http://www.healthwebsummit.com/pp081512.htm
a HealthcareWebSummit Event
co-sponsored by

PAYERS & PROVIDERS

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Top Placement... Bottomless Potential

NEWS
Earnings (Continued from Page One)
Altogether, the plan posted net income of $124.6 million on revenues of $2.62 billion. However, $119.4 million of that came from the sale of its prescription drug plan to CVS Caremark. Taking out that one time sale, net income was $5.17 million. That compares to net income of $56.8 million during the second quarter of 2011. Revenues for the second quarter of 2012 were $2.84 billion, up 7% from the $2.65 billion reported during the rst quarter of 2011. Health Net blamed the losses primarily on higher than expected commercial healthcare costs primarily arising from a select number of large group accounts with membership in full-network products, and secondarily on costs associated with MediCal, according to a company statement. Health Net said its commercial costs rose 8.2% during the second quarter, while premiums increased 4.6%. California began moving its disabled and elderly populations into Medi-Cal last year, and Health Nets population growth in this segment reached nearly 10% between the second quarter of 2011 and 2012. The average cost to care for this population is about ve to seven times more than providing care to a younger, healthier individual, according to industry estimates.

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In Brief
El Camino District Gets High Marks In Audit
An outside audit of El Camino Hospital District in Mountain View has concluded the district is using its tax revenues appropriately. According to the audit, conducted by KPMG on behalf of the Local Agency Formation Commission of Santa Clara County, the district had very low overhead expenses specically because El Camino Hospital performs any administrative tasks. The district receives $16 million in annual tax revenues, second only to the $27.6 million received by the Palomar Health District in San Diego County. KPMG also concluded that the community benets provided by El Camino to patients and the surrounding region totaled 9.5% of the hospitals overall operating expenses the second highest of comparable hospital districts in California. Of the $54.8 million provided in overall community benets in 2011, half was for the care of uninsured or underinsured patients for their care. The issue of the benets provided by districts has gained new traction in recent years as reports have surfaced of district hospital CEOs receiving retirement packages of millions of dollars and nonhospital districts providing little in the way of benets while still collecting mill levies. The audit was not completely pristine: KPMG questioned the value of El Caminos Los Gatos hospital campus to district residents. That facility is located outside the district boundaries. We are pleased that the report conrms our operational efciency and that the District and Hospital Corporation provide an essential healthcare service to district

Based on our experience to date, current SPD rates are inadequate, said Health Net Chief Executive Ofcer Jay Gellert. He added that the plan was in negotiations with the California Department of Health Care Services, which oversees the Medi-Cal program, to obtain a process intended to ensure adequate rates going forward. Gellert added that Health Net was also adjusting rates and its provider network conguration to address the commercial group issues. Although Health Net reduced its earnings guidance for 2012 as a result of the second quarter its second reduction this year Gellert believed the company was on the right track. We believe that we have identied and are on the path to resolving the issues in the commercial and Medicaid businesses that impacted our second quarter performance, he said. Health Net stock traded at around $21 a share earlier this week, a drop of about 20% from the $26 range it traded in prior to the release of the earnings report. Molinas stock has been trading in the $25 range, off from $27 a share prior to releasing its earnings. Both trade on the New York Stock Exchange.

ER Diversions Linked To Geography

Minorities More Likely To Encounter Congestion
Hospitals located in areas of California with large minority populations are more likely to be overcrowded and divert ambulances to other facilities, according to new research spearheaded by UC San Francisco. Researchers examined emergency departments at all of Californias acute care hospitals, excluding VA facilities, during 2007. Thats about 350 hospitals in all. It focused primarily on the 202 hospitals located in counties where diversions from ERs are permitted due to overcrowding. More than 90% of the hospitals were on diversion for a median of 374 hours during the year more than two weeks in total. However, there was a schism between those hospitals in predominantly white communities and those in predominantly minority communities.
Continued on Next Page

MEET YOUR FELLOW READERS

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Continued on Page 3

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Payers & Providers

Longer ALOS!*

NEWS
ERs (Continued from Page One)
Hospitals located in the former were on diversion a total of 75 hours during 2007. The latter were on diversion an average of 306 hours a multiple of more than four compared to the other hospitals. Our ndings show a fundamental mismatch in supply and demand of emergency services, said Renee Y. Hsia, M.D., assistant professor of emergency medicine at UCSF and the studys lead author. According to Hsia, such a difference in diversion statistics puts minority emergency room patients being transported by ambulance at a much greater risk for a compounding of their health problems compared to their white counterparts.

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In Brief
residents," said John Zoglin, chairman of the districts board of directors. As a publicly accountable organization, we are committed to acting in the most transparent manner and nding ways to better inform, educate and serve the community. We will continue to collaborate closely with LAFCo and will provide ongoing updates to community about the steps we are taking to make further improvements.

If you pass by a closer hospital that is on diversion for a hospital 15 minutes down the road, you are increasing the amount of time the patient is in a compromised situation, she said. It puts these patients at higher risk for bad health outcomes from conditions like heart attacks or stroke, where minutes could mean the difference between life and death. National data already conclude that minority groups such as Latinos and African Americans are more likely to die of strokes or heart attacks compared to whites. The study could not say if ambulance diversions played a signicant factor in those differences. The study was published in the most recent issue of the journal Health Affairs.

CDPH Fines Nursing Home In Death

Patient Struck by Car After Wandering Off
The California Department of Public Health has levied an $80,000 ne and issued a AA citation against an El Monte skilled nursing facility after a patient wandered away from the premises in 2011 and was struck and killed by a car. The citation against the Fidelity Health Care Center is the most severe the CDPH can issue under California law. An investigation by CDPH concluded that the Fidelity facility was not properly equipped to notify staff if a patient wanders off. Fidelity used a system called WanderGuard to track patients who had dementia and histories of wandering off. However, the WanderGuard system was not installed on every exit door of the facility, and the accompanying bracelet used to track the patient who died had never been properly tested, according to the CDPH report. The CDPH redacts public reports in order to mask the names of patients and the date of occurrences, but news reports conrm that the patient was Eduard Cantos Crus, a resident of Rancho Cucamonga. He died on February 17, 2011 after being struck on the 605 Freeway near Lower Asuza Road, not far from Fidelty facility. Crus had been wandering in the number two lane of trafc when he was struck. The driver of the vehicle that struck Crus subsequently hit another car, and the southbound lanes of the freeway were closed for hours afterward. The CDPH report indicated that Crus had attempted to leave the facility just prior to his actual departure, with a suitcase in hand. A staff member asked him to return to his room, where he would be served dinner. However, he did not comply. As part of a plan of correction, Fidelity agreed to install additional monitoring equipment, test its existing equipment, and continuously monitor all patients at risk for leaving the premises.

Kaiser Says Use Of Personal Health Records By Enrollees Continue To Grow

Oakland-based Kaiser Permanente has reported that 4 million of its enrollees are now using My Health Manager, its personal health record about 63% of all eligible users. To date, Kaiser enrollees have used the system to view nearly 30 million laboratory tests online; refilled 10 million pharmaceutical prescriptions; and scheduled 2.7 million appointments. "My Health Manager empowers members to take charge of their health, and our data show that they are doing just that," said Kaiser Chief Executive Officer George Halvorson. He added that two thirds of PHR users have logged onto the system at least twice. We know that connecting patients to their doctors and health information and tools improves quality outcomes, patient satisfaction and patient empowerment. The PHR was also made available through mobile phone applications in January. It has reported more than 235,000 downloads of the application through the iPhone and Android platforms to date. Last month, about 16% of all visits to the Kaiser website not the PHR were via smartphones.

STORIES OF ONE HIGHLY LITIGIOUS PHYSICIAN

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Payers & Providers

OPINION

Page 4

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The $64 Billion-Plus Taxpayer Question

Theres a Penalty For ACA Scofflaws is it Collectable?
through 140 million income tax returns to track Now that the U.S. Supreme Court has down the few who are actually liable. This decided that ObamaCares mandate to buy requires collecting information from both the health insurance is a tax, will the Internal insurance companies and the individual lers Revenue Service be able to collect it? in an expensive feat of bureaucratic detective Generally speaking, if you owe the IRS, it work. What are the specics? The details of any will get the money from youwith the plan other than taking your word for it have not possible exception of the ObamaCare tax. been worked out yet, but the likely scenario Though ObamaCares individual mandate nds insurance companies sending imposes a tax on people who do not documentation to the IRS and to the taxpayer, purchase government-approved health which the taxpayer would then include with insurance, the law explicitly neuters the IRSs his return. That means even more bureaucracy ability to collect the tax. and regulatory burden than the healthcare Bizarre? Yes. And it matters. If industry and the IRS currently have. policymakers expect uninsured young people Taking all parts of ObamaCare together, to buy health insurance when it is even more the IRS is expected to spend $881 million from expensive than it is today, the threat of 2010 through 2013 on thousands of new serious consequences for not doing so must workers and upgrades to computer be real. Yes, the threat that the IRS By systems. might come after you if you do not do what you are told looks real at rst Joseph Antos Finally, even if the IRS has determined that you owe the new glance. But Democratic politicians, fearing public backlash for making the and Michael R. tax, it has very limited ability to force you to pay it. Basically, the Strain mandate too intrusive, pulled its teeth. IRS has two options: To ask you for First, the tax/penalty is too small the money and to reduce the size of to matter to the people who are its your tax refund. But the IRS cannot target. In 2014, the tax will be the reduce your refund unless you overpay. Since larger of $95 or 1% of taxable income for an taxpayers have great control over their individual. By 2016 it rises to $695 or 2.5% withholding, a savvy taxpayer who does not of income. Young people would not want to want to buy insurance could easily work the pay a dollar if they could avoid it, but system to ensure that the IRS could not hold avoiding the tax means signing up for back his refund to enforce the mandate tax. insurance that many do not think they need. And half of American households do not owe That insurance is not free. Even with any income tax to begin with, so good luck subsidies, they will pay at least 3% of their getting the money from them. And half of incomes for premiums and up to 6% of the American households do not owe any income cost of the insurance in deductibles and cotax to begin with, so good luck getting the payments. That adds up to a lot more than 95 money from them. bucks. This contrasts sharply with the way the IRS Second, the law counts on most of the collects other taxes. To put it simply, the IRS scofaws turning themselves in. If you do not gets the money it is owed because it has broad have insurance and think you owe the tax, powers to enforce compliance. After all, theres then you will be asked to check a box to that a reason were all scared of the IRS. effect on your tax return. If you choose to ignore the mandate, you might also choose not to check the box. But even those who do confess that they do not have insurance may Joseph Antos is the Wilson H. Taylor Scholar in not be liable for the new tax. Illegal aliens, Healthcare and Retirement Policy at the Native Americans, prisoners, those who are American Enterprise Institute, where Michael without insurance for less than 3 months, R. Strain is a research fellow. This post first those who do not have to le an income tax appeared at The American. return, anyone who faces a hardship or cannot nd affordable coverage, and others Op-ed submissions of up to 600 words are are all exempt. welcomed. Please e-mail proposals to Third, the law requires the IRS to sift
editor@payersandproviders.com

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Payers & Providers

MARKETPLACE/EMPLOYMENT

Page 6

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