HSC's 13th Annual Wall Street Comes to Washington Conference

Conference Transcript
July 9, 2008

P R O C E E D I N G S

PROCEEDINGS

(9:00 a.m.)

Paul Ginsburg: Welcome to the 13th Annual Wall Street Comes to Washington Conference, and the purpose of this conference is very specific. It’s to give the Washington health policy community better insights into market developments that are relevant to health policy, and we’re going to discuss market developments and their implications for people’s healthcare, which is the core activity of HSC Center for Studying Health System Change. And I see this as an opportunity to tap a different source of information, equity, and bond analysts on this topic. Equity analysts advise investors about which publicly-traded companies will do well and which ones will not, and bond analysts advise in the likelihood of debt repayment.

Among the good analysts, like the ones on our panels today, development a thorough understanding of the markets that the companies they follow operate in, and they also follow a public policy, which often has important implications for these companies, and some of the analysts work for brokerage companies and advise the clients of those firms, some work for institutional investors, such as mutual funds or hedge funds, and one of the analysts on our panel works for a mutual fund that invests in bonds issued by not-for-profit hospitals, and this adds to our panel a window on an industry dominated by organizations that don’t come into the equity markets.

This is an opportunity for the equity and bond analysts to take a break from their day jobs of assessing the outlook for profitability or solvency of the companies and bring their understanding of market forces to bear on the questions that those involved in health policy have on their minds. And we also include on each panel a Washington-based health policy analyst, and these people have made valuable contributions to these sessions by better tying the market developments into health policy issues.

Our format this morning is like what we’ve done in the past, that it’ll be a roundtable discussion of a series of questions that I have shared with the panelists in advance, and we’re going to have a panel of the people you see here. It’s the panel on healthcare costs and premium trends, and various issues connected with health insurance. And the second panel is on delivery system issues from the perspective of providers of care, such as hospitals, physicians, and the pharmaceutical industry.

They’ll be an opportunity for audience question and answers after each. There are question cards in your packet. Please fill them out and give them to an HSC staff member, or you can go to the microphones and ask your question, and we’ll really like to have some of each at this meeting if we can.

Please note that the analysts are often not permitted to answer questions about the outlook for specific companies, but that’s not what this meeting is about. We care about the impact that policymakers care about, which is the impact on consumers, the budget, et cetera.

I want to thank the Robert Wood Johnson Foundation that funds this conference and is the largest funder of HSC, and I want to thank the people at kaisernetwork.org for webcasting the conference, and the webcast will be available afternoon tomorrow at kaisernetwork.org. And HSC will post a transcript of this conference on its Web site by early next week. And before you leave the conference, we’d appreciate it if you would fill out our evaluation form. It’s the yellow paper in the packet -- I hope it’s yellow this year -- and leave it on the registration.

I want to briefly introduce the panelists. The panelists comprise mostly of people who have been here before at this conference, and, so, for those that come frequently, you’re familiar with them. Those that have been here before are Christine Arnold, formerly of Morgan Stanley, Matt Borsch of Goldman Sachs, Josh Raskin and Adam Feinstein of Lehman Brothers, Jeffrey Harris of the Cerimon Funds, and Bob Berenson and Bob Laszewski, who comment as policy analysts rather than as bond analysts.

One thing I want to mention about Bob Berenson is that Bob has participated in HSC’s site visit work on a number of projects, including the broad community tracking study, and some of what he’ll bring is the perspective from that.

And new to the panel is Kevin Ponton of Dreyfus Corporation.

So, I’d like to begin the discussion with an issue that’s very much on the radar screen not this week, but, otherwise, the question of healthcare reform. And the first question, I’d like to ask about insurance industry leaders and how are they positioning their company for the possibility that some type of healthcare reform could be enacted next year, and is there more than one scenario that they see, including a scenario when some say nothing is going to happen, we’re going to ignore it?

Who’d like to start? Yes, Matt?

Matthew Borsch: Yes, I’ll take that. Just a quick crack at that.

I think just to spotlight one company that has made efforts in a couple of different directions, perhaps not -- while they haven’t expressed this as openly as preparing for health reform I think in some ways it is, which is Aetna and their purchase about a year ago of Schaller Anderson and the Medicaid infrastructure that that acquisition brought to Aetna, and I think that prepares them for the potential of reform in one direction.

And then the other would be the focus on the individually purchased health insurance, direct health insurance purchase market, which, historically, Aetna was not as focused on. They’ve been much, much more focused on that over the last couple of years.

And, so, in that sense, those are both immediate growth opportunities, but they’re also hedging their bets in the sense that one direction reform could take would be certainly greatly expanded public sector coverage programs for not only the Medicaid eligible, but the low and even moderate income uninsured, and then in the other direction, the individual purchase market, which would be more in line with some of the pro-market health reform initiatives, and, of course, it’s possible that health reform could expand enrollment on both of those fronts.

Paul Ginsburg: Christine?

Christine Arnold: I agree with what Matthew has said, I would just add that it’s not just Aetna that’s kind of discovered the individual market. Cigna, for the first time, has gone into the individual market. We’ve seen unprecedented growth in new markets by Coventry and Humana on the individual segment side. I think the expectation is that barriers to entry in the individual market will decline. If you’ve got guaranteed issue and the (off mike) brokers has diminished, the concept is if you’re in a lot of different markets, then when that growth happens, you’re in the best position to take advantage of it.

Humana’s developing networks, especially for their private fee-for-service segment with the expectation that deeming could go away and funding for private fee-for- service is vulnerable and it’s a big topic this week as the Senate takes up their bills -

Paul Ginsburg: We’ll go into that next.

Christine Arnold: And both Aetna and United have acquired Medicaid companies, so, we are seeing a shoring up of Medicaid with the expectation that will grow, and I would simply point out that the companies are saying that they think it’s going to be very hard to do anything more than incremental because of the budget situation, because of Iraq and the economy, but with a single party potential control, I think if you look at the MMA, there’s definitely precedent for something more sweeping than the companies anticipate or a positioning.

And the one thing I’d add is that Kaiser is looking is at retroactive rescission as a potentially big issue, and they’re offering that anyone they’ve rescinded in the last couple of years can come back on the roles, as they expect the issue of retroactive rescission in the individual market to be taken up at a state level, and it could bubble up to a federal level.

Paul Ginsburg: Yes. Josh?

Joshua Raskin: I would just add, I guess, sort of taking a step back, I think about broader healthcare reform, I think everyone’s sort of eluded to without sort of stating it obviously, that there’s a focus on the uninsured. I think that’s going to be the big topic going forward, and that’s not new news to these companies.

So, the big question becomes: How do you prepare for that? And I don’t think there’s an answer. You’ve got two presidential candidates with different ideas, I think, of how to ultimately get there. And from a health plan’s perspective, you can introduce more individual products and different price points at the lower end and things like that, but, at the end of the day, I think that the biggest efforts have been hiring lobbyists and just trying to help with the actual formation of that legislation as opposed to any real preparation work at this point.

Robert Laszewski: I would just add to that that, obviously, the debate between Obama and McCain, democrats and republicans, is whether you build on existing employer-based systems, Medicare and Medicaid, which Obama favors, and McCain wanting to redo the system on an individual platform.

I agree with everybody here that companies are sort of covering their bets and expanding what they’re doing in individual health insurance. The big exception to that is what Christine just mentioned in the rescission controversy.

You probably saw on the news yesterday WellPoint settled on an $11 million suit with hospitals in California over the people who are rescinded. It boggles my mind that the industry would be playing those games out in California at a time when the republican nominee for president wants to build on an individual platform. I would have to think most of the people who run these insurance companies are republicans, and they’re not doing the republican nominee a big service by fighting these battles in California the way they are.

For those of you who know me, you know that I’ve run a health insurance company, and when I came up through the ranks, we didn’t rescind policies for the things that they’re rescinding them for.

So, that adds to my confusion as to why they don’t get it straight.

The second thing that I would say I think that’s important is that leaders in the health insurance industry are firmly behind expansion through the employer-based system. While there are some cover your bets things going on in terms in building individual capability, there is no question that the leadership in the health insurance industry wants to see an expansion through the employer- based system. And some people have even said that publicly. The CEO of Aetna, testifying before Congress, came out and said that flat out.

So, there is a discomfort in moving in the individual direction.

Paul Ginsburg: Yes, that’s a good segue to talking about the individual market with either an Obama plan or a McCain plan. To different degrees, they’ll be increased emphasis on the individual market because that’s where a lot of people who are uninsured but are in the income ranges that tax credits or subsidies might be used are going to have to get their coverage, and the question is: From your understanding of how the individual market works, what will the federal government have to do in legislation as far as structuring, legislation, et cetera, of that individual market to get it to deliver what society would be looking for? For it to be spending a lot of government money, we want people to get good health insurance and efficiently through it.

So, who’d like to start? Yes, Christine?

Christine Arnold: Individual market is complicated because you’ve got the broker in between kind of the manage care company and the individual. I think the key is to entice healthy people into the pool, and we’ve got some -- now, Clinton had suggested an individual mandate, which neither Obama nor McCain supports, but I think there’s precedent for going halfway in terms of not really implementing an individual mandate.

And the question is: Well, how would you really enforce that? Would you send people to, I don’t know, Guantanamo if they didn’t actually sign up for coverage? And, so, it gets really kind of tricky in terms of making sure it actually happens.

So, if you look at the PDP, I think we’ve got some precedent here. There was a penalty for seniors who didn’t get into a PDP plan within six months. Right? So, maybe if we enact this legislation and the folks choose not to get into the health plans, then they’re going to be subject to medical underwriting in three months, six months, or there’s going to be an incremental penalty or they’re going to be stuck in a different plan with less choice of doctors and hospitals, but some form of enticement to get healthy people into the risk pool I think is critical because insurance is all about spreading risk, and if we have guaranteed issue without enticing healthy people into the risk pool, then all we’ve got is people waiting until they’ve had the car wreck and then calling Geico and getting the car insurance to cover it, which is not going to work from a structural perspective. We need subsidies for the sick, and we need serious discussion about a minimal affordable benefit.
So, what protects people against catastrophic costs, but also entices them to have the right behaviors and change their consumption of health insurance coverage, and then we need to get around, I think, some of the state mandates, so then we need to change what’s traditionally been regulated by the states in terms of minimum benefits versus the federal government. Are we going to cover, say, infertility the way that New Jersey does? Is that going to be part of what’s required to be covered in a minimum benefit package? Are we going to take all of the mental health circumstances that California covers? We have to make some tough choices.

Paul Ginsburg: Thanks. Bob?

Robert Laszewski: I would suggest - I think your question was what does the federal government need to do to make the individual market work? The federal government actually has some pretty good experience there. It’s called the Part D drug benefit. It’s community rated, it’s voluntary. The age range starts at 65. There are people in it who are 95-years-old. The people in the population are fairly sick and high ulitilizers, and it’s a system that has worked surprisingly well. I’ve been surprised at how well it works.

So, we can devise a community rated, voluntary, not mandated plan for lots of people who have lots of pre- existing conditions, and we’ve seen it work before, and I think that’s the model. I’m very surprised that Senator McCain, who has proposed the individual solution, has been so reticent to embrace what I think are pretty much traditional insurance principles.

Senator McCain says we ought to deregulate the market. If you’re sick, you would not be guaranteed coverage, other than, perhaps, an estate-based risk pool so that the insurance industry takes the healthy people and puts the sicker people in a state-based risk pool, and I think they point to Minnesota as an example of one that works pretty well. And if you look carefully at Minnesota, Minnesota is 50 percent subsidized by the government based upon assessments made through the back door to insurance companies.

An individual platform can work really well, as it has in Part D, and you do guarantee issue, as we have done in Part D, in a voluntary system, and you can figure out how to take care of the sick people coming through through a re-insurance scheme that assesses the entire block.

So, it’s very possible, it can work, it can work well. Distribution is a big issue; overhead costs are a big issue. Overhead costs in the group market average 12 percent, overhead and profit. In the individual market, they average almost 30 percent.

Now, Part D, they average about 10 percent because we’ve gotten involved with sending people a catalog and marketing in that way so we can come up with some pretty efficient ways to do it.

So, we can create an efficient individual market, and I don’t think it’s saleable to the American people. I don’t think you tell the American people to give up their employer-based health insurance without giving them some assurance as to how they make that transition.

The one thing that has worked for Joe and Mary middle American and the American healthcare system is the employer-based system. It may cost the employer a lot of money, may be unsustainable, but it’s the one thing that everybody appreciates.

How many people in here would give up your employer-based health insurance? You’re not going to do it; you’ve not going to take that leap unless you’re confident you’re going to be able to do that somewhat seamlessly.

So, it can be done, and Part D is an example of it.

Paul Ginsburg: Josh?

Joshua Raskin: I would just add one thing. To me, I sort of think about Part D, a huge success, and, obviously, high satisfaction levels, but the key to Part D in my opinion was the government was the backstop. They provided massive potential subsidies for losses through risk corridors and providing catastrophic insurance.

So, what’s going to happen, I think, in a scenario like that is you end up footing the bill at the government level, and I don’t know, maybe they find some funding, maybe there’s an idea to sort of spend in that direction, but, ultimately, whether it’s 10 years or only 5 years, or, who knows, 20 years, you’re back at the drawing table because spending in this environment or whatever and how you’ve sort of rolled that out is going to be sort of out of control. I think ultimately the way to attack the individual market is the cost.

I think the one thing everyone talks about is improving access and rolling out new products and new programs, and I don’t think there’s a traumatic loss. I mean, everyone in the country, there are ways to get insurance. I mean, there’s certain pockets, right? If you’ve got pre-existing conditions and things like that.

I mean, there was that article I think it was the Times or the Journal -- I forget -- this morning that was talking about the high risk polls, but, at the end of the day, it’s not an affordable product, and, so, I think there’s got to be someway to bring down the cost of the product before we can really address the access.

Paul Ginsburg: Let me move on. So, the issue of this week, which is Medicare advantage, and the second panel will get into the other side of the issue of physician payments.

I’d like to start off about private fee for service plans and ask the panelists: Do they have the potential to bring value to Medicare and its enrollees? Matt?

Joshua Raskin: Sure, I’ll just take a stab at that. I think the truth is the jury’s still out on this. There are a couple of things that can be done, even without defined provider networks, some voluntary disease management outreach, and some targeted, high-cost case management.

Whether those things, at the end of the day, yield demonstrable savings has yet to be determined. Humana, one of the largest firms in the private fee-for-service market would argue that it is yielding value at the same time. That company is moving towards the eventuality towards private fee-for-service likely going away, and it may be that we won’t have the full answer to the question until after the product is gone.

Paul Ginsburg: Is there a private fee-for-service business left if there’s no deeming?

Joshua Raskin: I would say, I mean, private fee-for-service as we know it, no. I mean, clearly without deeming, you have to build networks, and I think, as most of you know, the problem that you run into is in rural and semi-rural areas where you have a scarcity of providers and the plans don’t have network leverage to yield unit pricing that is comparable or even close to Medicare.

I would say though that some of the larger plans are probably better positioned on this front, given that they already have commercial relationships, and I believe in the legislation that did not get through, but was recently proposed, there were exceptions for rural areas, so, you would continue to have those types of plans in areas where networks were perhaps the most difficult to develop.

Paul Ginsburg: Sure. Bob?

Robert Laszewski: Well, the problem with private fee-for-service is two levels, I think.

First of all, private fee-for-service was never intended to be a permanent product. It was intended to be a transitional product.

As I think most people in this room know, the 1997 Balanced Budget Act really kind of screwed up the private Medicare markets, pushed seniors out of it, pushed insurance companies out of it.

So, in 2003, to get insurance companies and seniors interested in the product again, to sort of prime the pump, private fee-for-service was created with some generous subsidies, if you will, so that insurance companies would go into markets where there were not provider networks, have the incentive to build a block of business that could then be later converted to networks, and provide the incentives for seniors who may have been skeptical to come into the programs. Once you’ve got a ton of lives in a particular market, you would then go to the next phase, which is to build the network, because I think anyone who believes that managed care can be more efficient that Medicare would have to believe that it’s managed care that will do it, not a fee-for-service product. There’s no traction.

It starts with the fact that Medicare has an expense ratio of around 3 percent. I realize that’s controversial in some places because people feel that there are unallocated costs someplace else, but for the sake of comparing what Medicare charges itself versus what the insurance company can charge, they’re operating at about a 3 percent expense ratio. In the private market, you’re operating at a 10 to 15 percent expense and profit margin, and, so, on day one, the private insurance company starts out more than 10 points in the hole. So, you’ve got to make up that 10 points and being able to manage care.

Well, if you have no networks, which is the case in private fee-for-service, how do you make up the 10-point margin? So, it’s a non-starter. It was always intended to be a transitioned product.

So, and what the Baucus Bill does is it says that by 2011, people have to have networks.

And, really, I think that’s a pretty reasonable thing for the democrats to be expecting. They’re not cutting the rates; they’re simply saying gee whiz, guys, you’ve been doing this since 2004 now, you get to 2011, 7 years later, maybe we can kind of take the training wheels off.
So, I mean, that’s what the proposal is about, and, no, private fee-for-service is not sustainable because it was never intended to be a sustainable product.

Paul Ginsburg: Yes. Following-up, Christine, is there a way that policy changes can actually force changes in private fee-for-service to make it viable long-term?

Christine Arnold: Well, I mean, I think the key issue here is that, according to MedPAC, we’re paying 19 percent more per senior that’s enrolled in a private fee-for-service plan relative to what we would have paid if they’d stayed in regular Medicare fee-for-service.

So, I think the issue here is: Is it fair that we’re depleting the Medicare trust fund by overpaying for this small portion of seniors, who, presumably, are getting better benefits and potentially overpaying the manage care companies?

So, I think the question is: Do we want to support private plans or not? And if I were a policymaker, here are the things I would consider: Let’s make this a product since we’re paying more than a fee-for-service Medicare that’s only available to those seniors that need the enhanced benefits, and then let’s regulate to make sure those enhanced benefits happen. So, here’s how I would think about it. This would be a product that would only be offered to low-income seniors, and, right now, CMS does not audit the bids, so, there’s no guarantee that the incremental 19 percent in payments is actually resulting in incremental benefits to seniors.

So, I’d give CMS audit responsibility to ensure that that 19 percent or some portion of that 19 percent is going to these low-income seniors in the form of enhanced benefits because they’re vulnerable seniors who can’t afford many of the co-pays and deductibles associated with fee-for-service Medicare. I would require that these plans offer Part D. Right now, these plans do not have to offer drug coverage. And by not offering drug coverage, they could be risk-skimming the healthiest seniors. And what you want is an integrated package so that managed care can truly work, so require that it be an integrated package, and then permit some medical management.

According to the manage care companies, going from an unmanaged product to a managed product can produce up to 10 percent savings. So, if you can harvest that 10 percent savings, you can get some of that 19 percent back without harming patient coverage, so, allow incentives to doctors and hospitals to notify the manage care company when someone’s been admitted, coordinated care, pre-cert, prior auth. None of that’s happening right now because the doctors and hospitals aren’t required to tell the health plan that a member’s in the hospital, so, how could the health plan manage the care if they don’t know that you’re getting care? So, I would implement some manage care provisions and allow pre-cert and prior auth. That’s what I would do.

Paul Ginsburg: Okay. I’d like to turn the discussion to the rest of Medicare advantage, the Coordinated Care Plans, the HMOs, and the PPOs, and ask the analysts about how are these plans evolving, and maybe one way of crystallizing it is are they going in the same direction that commercial plans are going or are they, because they’re different, heading out in a distinct direction, or not heading anywhere? Yes, Matt?

Matthew Borsch: Just quickly on that, the one key difference, obviously, is that the Medicare Advantage product is at the individual retail level, and, so, I don’t -- in that sense, Medicare Advantage Plans do not have the burden that employer-based plans increasingly have, and I say "increasingly" because employers more and more are contracting with fewer and fewer carriers, and, in many cases, a single carrier, and, so, they have to select a plan that has very broad networks that meets the needs of a geographic and otherwise diverse workforce, and that’s not the case with Medicare Advantage. In fact, with coordinated care plans, you can design something that’s much closer to the original concept of the HMO model or even a staff model plan that can work for a segment of the population that you’re targeting.

Paul Ginsburg: Josh?

Joshua Raskin: And I would just add one of the things about sort of the core of the HMO, I think that same MedPAC report that Christine was alluding to suggested that the HMOs were spending about 95 cents on the dollar to provide the same level of benefits as Medicare. So, clearly, there’s an opportunity to use private plans to save for the government, so, I think there is long-term viability in Medicare Advantage, broadly speaking. I would agree with the previous comments that private fee-for-service is not the answer.

In terms of the product design, I think you are seeing actually a migration towards techniques used in the commercial populations. The drug benefit, which is now all of almost three-year-old, looks a lot like the three their co-pay structure that we’ve seen in the commercial population for the last decade or so. We were just looking at some data that was talking about co-pay differentials, and you’re even seeing in terms of the bids -- we haven’t seen the 2009 stuff, but the 2008s versus the 2007s, the same exact trends, keeping that first tier of generic co-pay very low, no changes there, and then increasing the spreads between the second and the third tier.

So, I actually think you’re seeing the techniques that were useful in the commercial population being translated to the Medicare population. At the end of the day, they’re all designed for cost savings, which sort of helps everyone involved.

Paul Ginsburg: I remember a few years ago when Part D was developed, a lot was said about the potential for integration of the Medicare Advantage benefits and the Part D benefits.

In your sense, was that just a buzzword or a plan to actually really taking advantage of the fact that they’re providing both drug coverage and medical services?

Joshua Raskin: I’ll start that. I think the biggest problem is the product design. So, if you think about it, if you’re a health plan, you’ve got different sort of reimbursement and loss potentials in Medicare Advantage, sort of the MA product versus a PDP product and sort of that bridge with MAPD. So, there are areas where you may -- from a total medical cost, it may be more efficient to provide a certain pharmaceutical spending in terms of preventive medicine where, under the MAPD Plan, that may not be the most economical for the plan.

So, I think the integration of pharmacy and medical data is certainly a reasonable way to better manage healthcare costs and improve quality, I’m just not sure the product design necessarily facilitates that at this point.

Robert Laszewski: Paul, again, I think it’s important to remember the reason we did this in the first place. The conservatives believe that the way you bring Medicare under control is using the private market to do it, and, obviously, liberals have a different view.
I actually think George Bush had it right in 2000 when he ran for president because what he called for in 2000 in running for president in Medicare was to create a system where private plans would competitively bid, and you would set the reimbursement rates based upon competition in the market.

When the 2003 Medicare Modernization Act was passed, instead of that, while we had that provision in there, it’s been long ago lost. In place of the system that’s currently being taken advantage of, where CMS sets the rates based upon what they think they paid for standard Medicare, and that’s done county by county, and, so, what we’ve got is a system right now where the way you make money in private Medicare is figuring out which markets you get the best reimbursement in taking advantage of that. That’s the biggest reason why we’ve had such incredible growth in private fee-for-service, is because you get, by far, the best reimbursement in private fee-for-service, particularly in certain counties.

And, so, what we’ve got is a marketplace chasing a system, trying to figure out how to gain the system instead of a marketplace trying to figure out how to manage care more effectively. And that’s a bit of an oversimplification because in many of the mainstream Medicare Advantage Plans, health plans are trying to do a better job of managing care and bringing costs down. But not enough of that is going on in the market, and that’s why private fee-for-service is, by far, the fastest growing part of the system. And as long as we have a policy here in Washington that we send out to the health plans that says go figure out which counties you can make the most money in, we’re not going to be chasing the right objective, which is managing the cost of care much more effectively and efficiently.

Paul Ginsburg: Yes. Actually, this kind of reminds me of something that I was never taught in economics programs, but I think comes up at these meetings often, is that there are easy ways to make money and hard ways to make money, and people won’t get to the hard ways to make money until they’ve exhausted the easy ways.

Robert Laszewski: That’s right. And they’re making it pretty easy with 17 percent overpayments. Yes.

Paul Ginsburg: That’s right. Christine?

Christine Arnold: One issue that you didn’t necessarily ask about but that I’ve been thinking about a little bit is that the PDP Program has, as Bob talked about, done really well and been really successful for seniors, but I think we have a looming policy challenge, which is that 40 percent of PDP members are in United and Humana, and both are struggling with the challenge of the dual eligibles.

So, the risk corridor is contracted, both companies are -- I mean, Humana is losing a lot of money on their PDP. And United’s not doing much better. And if you look at the structure of the plan designs, both United and Humana cover the majority of the top 10 drugs taken by seniors, whereas the companies who I think are making a lot of money don’t have those branded drugs on formulary.

So, the issue with the dual eligibles, the maximum you can charge them is a $5 co-pay because they’re poor and they’re old and they don’t have the resources. So, the only way to keep that senior from getting that brand of drug is to take it off the formulary and say no. And the challenge we were going to have is either United and Humana are going to do the right thing or their business, which is to take these drugs off the formulary, in which case, all these seniors in nursing homes aren’t going to have access, nightmare at the nursing home, or they’re not going to do the right thing and we’re all going to be pretty irritated for another year.

But this will only go on for a certain period of time, so, I think it’s time to revisit the way we’re treating the duals in the PDP Program, and a little tweaking of that benefit might be in order. I don’t know how my friends on the panel feel about that, but.

Paul Ginsburg: Yes, actually, let me ask a follow-on or maybe a statement.

It seems to me that as far as dealing with the issue of risk selection, that PDP Program has the very toughest job imaginable because (off mike) to enrollees no more than they’re likely spending on drugs for the coming year, and the fact that they would enroll as individuals.

So, in a sense, we could have the most sophisticated risk adjustment and market rules about who you have to enroll, and we still could have a selection spiral.

I don’t know if any of the panelists have thoughts on that.

Robert Laszewski: We may be in the beginning of one. I’ve always been dubious about PDP in terms of some of the issues in the market, and we do seem to be seeing a tightening of margin. I’ve always believed anti-selection could be a big issue with the seniors. It didn’t show up in the first and second year. It’s not clear that it’s showing up in the third year, but the first year, the seniors were intimidated by Part D and everything about it. Now, they’re not so intimidated any longer. They go into the catalog, they find the drugs that they need, and they find the insurance company that gives them the best coverage, and they take it.

So, I actually think that the senior market is getting smarter about it, and it could be a problem down the road. That’s why it’s so much better to have the Part D drug benefit integrated into a larger Medicare program rather than sitting out there all by itself. And I think that we’re going to have to get to the point where it’s integrated into a larger Medicare program or we’re going to have this sort of cherry picking going on on behalf of the consumer.

Paul Ginsburg: Okay. Let me go to the next question, which is commercial insurance, and I want to begin by -- for those that do follow the stock market, I’m sure you’ve noticed that insurer stocks have experienced very large price declines year to date, and I’m sure that these analysts have been interpreting what that means for their clients, but I want to raise the question as: Is there anything in what’s happened in the insurance industry in the stock declines, any reasons behind them, that are relevant to a policy audience in a sense that, as far as the future of the insurance market?

Matt?

Matthew Borsch: Let me take a crack at that. I think that we see -- there are multiple facets to what’s negatively impacted companies this year, but two things I would point to as major causal factors, first and foremost, and we can get into this a little bit in the next question, the health insurance underwriting cycle, and I’m not sure that that dynamic has really any particular lessons for policymakers other than to be aware of that in terms of forecasting where health spending is going.

Secondly, though, is what’s going on in the employer marketplace, and I think there’s clearly a big problem because normally in -- if we just backtrack for a minute, in economic expansions, you normally see an expansion of employer coverage, and you certainly saw that in a pretty pronounced way in the late 1990s. And then, of course, as expected, we saw some pretty sharp erosion employer coverage in the sort of mini recession of 2001, but the economic expansion that we’ve been through until recently has been contrary to the trend you’d expect. Employer coverage has been eroding during that expansion, and now it appears -- and we see this in some of the pressure felt in the manage care companies -- that the erosion of employer coverage is really in an accelerating phase, and the danger here for the industry is the political support for the employer-based system. It may be eroding more rapidly than is commonly assumed.

Paul Ginsburg: Anyone else? Josh?

Joshua Raskin: Yes, I mean, I think it’s (off mike) sort of to play on Matt’s point. Is that when you see difficult times like this for the health insurance industry and it corresponds with an election year, you start thinking about well, if you’re McCain, we’ve got to dismantle the idea of the tax subsidy for employers and change the whole system, et cetera. My belief, it’s just the markets are self-correcting. If the health plans have been doing something, acting in ways that were not sustainable, that will correct itself.

So, I’m not sure there’s a ton to pull. I mean, the problem is the uninsured has been a big issue, and it’s been rapidly growing in the last several years. So, I just think it’s one of these environments where we’re going to talk a lot about it. I’m just not sure that this is - I don’t think we’re necessarily going to get policy action. I’m not necessarily sure we even need policy action at this point.

Christine Arnold: The one thing I would point out is that the sector is not in the position of strength from a capital access and balance sheet perspective. Therefore, policy changes that destabilize or dramatically reduce the profitability of the industry creates a real risk that we see reverberation, i.e., liquidity issues. These companies levered up to buy stock at higher prices, and they’re not hugely levered, but they’re more levered than I’ve seen them in two decades, and they’re getting to the point where they’re saying look, we can’t borrow any more, we’re at risk of losing our debt rating. So, steps to reduce profitability in multiple business lines all at the same time could really destabilize these companies, and if some of these companies have issues go away, the repercussions to doctors and hospitals are not insignificant.

Robert Laszewski: I don’t think you can ignore from a policy perspective what’s going on. For those of you who don’t follow the stock market on a daily basis, as of July 1, the S&P 500 Index was down 19 percent. Universal American, one of the largest disproportionate players in the Medicare Advantage in Part D business was down 62 percent. United Health down 57 percent. Humana down 55 percent. This is over their 12-month highs. So, Humana down 55 percent over its 12-month high. Coventry down 53 percent. WellPoint down 48 percent. Cigna stock price down 38 percent. And Aetna down only 34 percent.

When the day is done, the value of a company is a function of what the marketplace believes its value is to deliver its product in the marketplace. If the company is doing a good job of delivering the value of its product, its stock price will reflect that. If a company is doing a poor job of delivering the value that the customer expects it to have, it’ll have a high price. What business are these people in? They’re in the business of delivering cost effective and quality healthcare. What does the marketplace say about the value of the product they’re delivering today?

It’s interesting when you look back at Medicare Advantage and Part D. Two-thirds of these companies have lower stock prices than the day they went into the Medicare Advantage business. Everyone of them has a lower stock price than the day they launched the Part D business. Shareholders, interestingly, have not benefited whatsoever from the privatization of Medicare.

And you can say well, but they’re going through an earnings cycle, and I guess we’re going to talk about the earnings cycle in a few minutes. Well, that’s part of the business, and what you have is a lack of confidence in the part of investors that these people can deliver value. There’s a policy implication to that.

Paul Ginsburg: Matt?

Matthew Borsch: Just quickly because I know we’re going to get into the topic of the secular trend in the industry, but, Bob, I actually disagree with your viewpoint there because I think what the market is reacting to really reflects the financial cyclical trend in the industry, which I don’t pretend to completely understand, nor do I think the market completely understands it. But what the market is reacting to is very specifically the prospect that the earnings at these companies are declining, not growing, where we went through a period where earnings growth was astounding in this industry at 30 percent or more a year for the years between 2000 and 2005, and the market’s always been pretty shortsighted about that type of thing, but the market’s looking at declining earnings now, and the market’s worried about the Medicare side, which, in some ways, is still working, but there’s some problems where there are storm clouds on the horizon in terms of reimbursement in full.

Robert Laszewski: Do you have a buy rating on any of these?

Matthew Borsch: Well, let’s go through them. I have I guess -- we’re actually not supposed to get into that.

Paul Ginsburg: I don’t think we’re going to get into that. But let me ask the next question.

Do you think that these hard times for insurers will result in new business models arising or even entry into the industry by someone that’s doing it a different way?

Joshua Raskin: I guess if you think about the last downturn, which was just about 10 years ago, that was sort of the tail end of sort of the HMO era and where sort of the middle of the PPO era, so, it was more of a product design change, et cetera. But, at the end of the day, these companies are still in the business of delivering health insurance to employer groups and individuals and government entities in any way, shape, or form. So, unless there is a large change from a regulatory standpoint about how the design of the tax code is around health benefits, I can’t imagine that these companies you’re going to reorganize, decide to get out of commercial group insurance and go just individually. I can’t imagine you’d see anything like that.

Christine Arnold: I think there’s real evidence that the consolidation of the industry has actually been value destructive, and that’s been the card this industry’s been playing for the last couple of years, right? So United and Humana gobble up a whole bunch of companies; I don’t know what their cost trends are; I don’t know the price; can’t process a claim; yadda, yadda, yadda, it’s in the papers. So, you know, that - and consumer-directed healthcare have been the thing that we’ve been talking about for, what, the last five years? And nothing positive has come from those trends. And I think we’ve actually reached the point of diminishing marginal returns on both of them. I think we’ve shifted so much cost to the consumer that they’re delaying and deferring and now we’re seeing a spike in catastrophic care because people are train wrecking. That’s consumer-directed healthcare. And we’ve talked about the issues with the consolidation. So I think the marketplace is really ripe for a disruptive health plan. So think about what’s happening in the marketplace. The hospitals are only collecting 50 percent of co-pays and deductibles. Half, that’s it. So no wonder the hospitals are raising price to managed care companies, which is spiking their medical trend, because they’re not collecting co-pays and deductibles. But what if a new entrant were to come in and say here’s your benefit card, and you have to have personal credit to cover your out-of-pocket maximum and it’s linked to this. Now Aetna and CIGNA tried to have a card and link it to Visa, but Visa and AMEX were like oh no, we don’t want to take any of the medical risks because you could file for Chapter 11 bankruptcy, dah, dah, dah, as an individual and all of that gets wiped out and they didn’t want the risk. So you have to put it on the consumer. That’s one example of kind of a disruptive health plan. Employers are really irritated with the whole disease management thing. So if we talk to Mercer, Towers, Hewlett, all those guys, they’ll say look, people get sick, they die or get better. It’s a version to the mean. How do we know disease management is actually producing anything positive? What they really want is an at-risk health plan. So some new health plan that takes risk and says, you know, I am limited in what I can do with the ERISA with my beneficiary, right? So, if I say you’ve got to, you know, you’ve got to get your body mass index to X. Okay, so we ask you to participate in a program, but if it doesn’t work, and you don’t do the things you’re supposed to, there’s no penalty under ERISA. So what we need, according to employers, is kind of a health plan on steroids with respect to how they treat doctors and hospitals. So, let’s pay the docs and the doctor groups double if they actually produce positive results in terms of health, and let’s pay them half if they don’t. So, and let’s take the people once they’ve been diagnosed out of the mainstream health plans, which employers believe aren’t doing anything very interesting for people -- about 80 percent of costs driven by 20 percent of people who are sick -- let’s pull them into a separate health plan. I mean these are things that employers want. And from my perspective, from a policy perspective, the industry needs a little bit of adult supervision here, they need to be forced to share data so that we can actually identify who the best doctors and hospitals are because if Aetna’s saying this is a great doctor and United’s saying it isn’t, then we erode consumer confidence that we have any idea who a good doctor is. And so I think the time’s ripe and I’m hopeful that we’ll see some movement.

Paul Ginsburg: Okay, let me get into the core of the cost trends, premium trends, underwriting cycle, and, you know, basically ask, you know, is there change in the cost trends and, you know, what’s your spin on the underwriting cycle? And Josh, you haven’t had a chance to star yet.

Joshua Raskin: Sure, thank you. So, yeah, I mean, just looking at the cost trend, it’s been a real, you know, sort of interesting year observing the publicly traded companies because, you know, there really hasn’t been, you know, maybe Coventry, there really hasn’t been anyone that’s come out and said there’s been this massive uptake in, you know, the commercial medical cost trend. Everyone thinks it’s -- I don’t know whether it’s 7.5 or 8 percent, you know, somewhere in that range -- you know, the data behind it if you look at hospital admissions or, you know, certainly pharmacy data, you know, and some of the other Medicare data that you can pull, it’s just not visible that increase in cost trends. So if you think about, you know, what we’re, you know, what we’re seeing this year versus what the companies are sort of reporting from earnings, there’s a little bit of a disconnect there, you know. But I think until we see evidence in the market, I think it’s hard to say that there’s, you know, definitive up trend in medical costs here.

Paul Ginsburg: Yes, Matt?

Matthew Borsch: Why, I would generally agree with Josh, I guess I would just, you know, interject one point here on the cost side, which is, you know -- on the one hand you can look at pharma-scripts and hospital volumes and it’s definitely true that, you know, that the volumes are -- certainly don’t appear to be rising at an accelerated rate, in a number of areas they look more sluggish if anything. But what may be impacting the managed care companies to some degree on the margin, and perhaps more so this year, is a sort of form of adverse selection when you think about, you know, how much the consumer and small employer is squeezed in this environment. One theory is that those who - and this has clearly been going on to some extent for a while -- those who need coverage are, you know, are very tenacious in holding on to it and obtaining it, and the healthier, younger people in this economic environment perhaps more likely to decline even heavily subsidized employer-based coverage. You’ve got the fact that more, you know, more people are disrupted from their jobs and a higher take-up of COBRA. And COBRA’s sort of the ultimate form of adverse selection if you will. And even some anecdotal information in the industry that there’s been some adverse selection towards the lower benefit products. And in the middle market employer groups a shift to employer self insuring, which, you know, tend to be the healthier groups on the margin. So you’ve got this segmentation of the community risk pool, what used to once be a community risk pool has increasingly becoming one where risk is concentrating. I think that is impacting trend as experienced by some of the managed care companies.

Christine Arnold: I’m seeing evidence of medical trend uptick. And it became more definitive for me after first quarter. I also cover the hospital sector, and we do a survey every quarter of hospitals. And over 50 percent of hospitals said that they were getting commercial pricing increases that were accelerating in excess of 200 basis points entering 2008. The problem that we have is that hospitals got price increases, and that the pricing power of the hospitals has somehow increased. Now, we got the same survey result of the hospitals asking the question different ways in January versus May, and what baffles me - what I don’t understand is that hospital pricing was negotiated. So the managed care company and the hospital were at the table kind of like we are and how the managed care company could leave the table not realizing he had just negotiated a price increase is one of those great mysteries. I don’t

--

Paul Ginsburg: Well, what makes you think they’re not aware that they may be had no choice but to agree to a price increase?

Christine Arnold: But you call them now when they say there’s been no price increase --

Paul Ginsburg: Oh, I see.

Christine Arnold: -- and then you look at the price per adjusted admit at the hospitals and you’re like, wow, there was a flu first quarter, which is low acuity, which should bring down price per adjusted admit. Yet it was through the roof, and the survey results twice asking the question different ways of different hospital CEOs and CFOs suggests the same thing. So another data source that I use is talking to the reinsurers, and I am seeing with the reinsurers a spike in catastrophic claims. I don’t know whether it’s a train wreck, i.e., you had a $5000 deductible, you delayed and deferred, and so in stead of getting diagnosed stage I, you were diagnosed stage IV of whatever disease state. That’s a possibility. It could be the adverse selection that Matt’s talking about, the people who are insured or just generally sicker. It could be the fact that hospitals are getting price increases so we’re bumping more claims into that catastrophic coverage area. So for example, Coventry said the 50-150 category of catastrophic claims, which is your first tranche, rose, which could be just a bump-up of a hospital pricing. Some of the reinsurers are saying that they’re seeing an increase in obesity-related claims, which is producing single-birth NICUs as the borderline diabetic mom is full blown to stational diabetic, and also an increase in dialysis-related claims also they attribute to some obesity issues. With the whole Christopher Reeve thing, out-of- pocket maximums have increased; used to be $1 million lifetime max, now we’re seeing $2 to $5 million lifetime maxes, which is increasing catastrophic claims as well. So I think medical trend is accelerating, and those are the reasons I think that it is.

Paul Ginsburg: Okay.

Robert Laszewski: On the medical trend situation, I would agree with you that we’re starting to see an uptick in medical trend. One of the interesting things out there -- you know, we can talk about stock prices and we can talk about insurance company pricing behavior, but one of the observations that I’m making is that we are, in fact, seeing a lot more big claims. And we are, in fact, seeing people sicker and there’s no answer for why that’s going on. You’ve got some pretty good theories about it that I think are intriguing.

Christine Arnold: But I made them up. I mean, I --

Robert Laszewski: I know you did, but they’re good, they’re pretty good. The point is -- what troubles me a bit is there is no answer for what’s going on out there. There is no really good explanation for what’s going on out there. But we are seeing a sicker American people, particularly at the top and particularly when it comes to these big claims. Now that aside, the trend is ticking up a slight amount. You know, one of the big questions you hear -- people ask out there is, is there an underwriting cycle? No, there isn’t an underwriting cycle. Last time we had an underwriting cycle in this business was probably in the late 1980s. What we are having is a medical care trend cycle where we go through periods where the payers and the providers are sort of in and out of equilibrium. In 1999 we had the -- we got costs down to like 0 percent trend and we got the patient’s right rebellion -- probably should have called it the provider’s right rebellion -- we got pushed back, the lid came off, costs went from 1999 0 percent trend to 2003 13 percent trend. We reached a kind of equilibrium between the doctors, the hospitals, and the insurance companies starting in 2003 and trend began to decelerate, and it decelerated to a low of about of 7 percent in 2007. And it kind of -- and that trend deceleration hit bottom and with the trend deceleration, it was really easy to make money in this business as trend is coming down. When it hit bottom in 2007, it could only go one place. It was either going to kind of bounce around there or start going up. And what we’ve seen now are indications that it’s may be ticking up a little bit. Two things tend to drive medical cost trend in the insurance business. One is higher inflation and the other is cost shifting from doctors and hospitals to insurance companies when the government, Medicare and Medicaid, underpays. Looking through the rear view mirror the last few years, we have not had inflation and we have not had cost shifting because really Medicare and Medicaid have been paying about as well as they have ever paid. Whatever the providers tell you out there, Medicare and Medicaid have been about as good as it’s been.

All right. Now going forward, obviously we’re going to start seeing some significant inflation. Going forward, I don’t have to tell anybody in this room, doctors and hospitals and others are under a lot of pressure for cost cutting by Medicare and Medicaid, and we’re going to start to see that trend really increase. So this industry had from 2003 until now one heck of a nice tail wind, but now the industry is starting to face a real head wind, and it’s going to be a very very difficult period for the next three or four years as providers now need to get money. And they’re going to get it from the payers, and the payers are always a little bit behind in getting those things priced through and that’s going to hurt margins. And that’s at a time when Medicare, private Medicare, sales have slowed down. The low-hanging fruit’s gone. And what they’re being reimbursed for, those things are tightening up. So we have the trend windfall and we have this wonderful private Medicare market thing the last five years; those two things start to turn to be negatives going forward and you’ve got a head wind.

Paul Ginsburg: Matt.

Matthew Borsch: I just want to comment on the pricing side. And I do agree with the points that Bob has made in the cost trend side, you know, is definitely an important factor in impacting the earnings and fundamentals for the health insurance. But the pricing side is important, too, and I do think there’s still an underwriting cycle, if you want to call it that, in this industry. And so, you know, be cognizant of the fact that in the early years of this decade, coming off of the last downturn in the industry, you had a situation where most health insurance plans were pretty squeezed. Their capital levels were depleted from the last downturn, their profitability was severely depressed or negative in many cases, and, you know, the end result of that is the pricing discipline, if you will as it’s called in the industry, was very hard coming into the early years of this decade. In fact, what you saw was the health insurance industry had an accelerating cost trend, but was actually pricing above that accelerating cost trend and expanding margins, again in the early years of this decade into about 2003 when the not-for-profit plans got to a point where they had a little bit of a problem of an embarrassment of riches relative to their not-for-profit status and things started to turn. And now you have a market where, at least until recently, pricing has been very aggressive and margins have been coming down.

Paul Ginsburg: Thanks. Next question is about benefit design. If any of you have data on whether buy- downs, benefit buy-downs, are slowing, which I think last year Christine reported. And is there any movement towards some of the more innovative benefit designs, such as value- based benefits, or is that something that is more of the talk of conferences rather than reality?

Christine Arnold: Our data suggests -- we do a broker survey every year -- that the first time in three years, benefit design changes are decelerating. So we’re seeing basis points less in cost shifting to the consumer; therefore, if the trend remains stable and so you have a 10 percent trend both years and last year you shifted 5 percent to the consumer and this year you’re shifting only 4.5 percent, the trend realized by a managed care company would rise, right? So that’s a head wind. I agree with Matt that we also have a pricing problem because the broker survey suggests that pricing before buy-downs is decelerating by 100 basis points. So I think we have an acceleration in medical trend for the reasons we talked about earlier, we’ve got pricing coming down because the industry hoped or expected or whatever the trend would come down and it didn’t, so pricing’s coming down before benefit changes, and we’ve maxed out benefit design changes according to both brokers offering to small employers and large employers. So the only place we can continue to shift costs to the consumer and we haven’t is unionized accounts where there’s obvious impediments.

Joshua Raskin: I guess, you know, my only question is, you know, what’s the economic impact there? And if you’re a large employer group, and, you know, summer to fall of 2007 things seemed to be okay still at that point. So, you know, we do a media survey as well and, you know, the data that we show -- that we saw as well was that ’08 was a lower level or incremental buy-down versus 2007. As we’re looking at 2009 and we’re getting into the sort of, you know, renewal cycle, you know, as large corporations across America are struggling, you know, we may feel like we’ve saturated that, you know, point of no return in terms of how much the employer can take, but when the employee -- the employee can take, but when the employer is struggling, I think it will be interesting to see, I wouldn’t rule out the idea that we see further, you know, additional buy- downs, you know, nine versus what we’re seeing in ’08.

Paul Ginsburg: Do you think -- how would you say this is linked to the developments in the economy over the next year?

Joshua Raskin: You know unfortunately, you’ve got to make healthcare decisions way in advance of what happens, you know, in the economy. I mean if you’re a large, large employer in the United States, you’re deciding on your benefits for 2009 today, so, you know, you’re making a guess as to what’s going to be happening in the end of 2009 in the summer of 2008. So, you know, if we were to see an economic recovery that was somehow quick and rapid in 2009, I don’t think that’d be indicated in the decisions made by benefit managers. I think that’s probably not reflected until 2010.

Paul Ginsburg: Good. Next thing I want to get into is health promotion and wellness. And certainly HSC has been publishing about how, you know, this sharp increase in interest by employers in programs to promote wellness, etc. I wanted to ask the panel, is this just a fad that’s going to pass, or is this something real and, you know, do they have powerful tools that are just a matter of deciding to use them?

Joshua Raskin: I’ll jump in there. You know, we cover a couple of disease management companies in our coverage universe, and you know, what’s interesting is we’ve been doing a little bit of work on this. It looks as though the, you know, application for new wellness programs is actually slowed, and I think it’s been a recent phenomenon, i.e., the last three months or so. I’m not sure exactly what’s doing it. The economy certainly could have something -- the idea of implementing a new additional cost for an employer group. Even if it’s preventive and it’s got a good ROI, etc., it’s still an impediment in the short term, just the economy. But, you know, it’s interesting, you had the CMS, those Medicare health support pilot programs that they rolled out which were just, you know, nine failure after failure after failure there, and, you know, CMS basically just put their foot down and said we’re not going to throw bad money after -- or good money after bad -- and so, you know, I think there was a little bit of a tarnishing from a reputational standpoint and, you know, I don’t know how many decades it’s been, but that wrestling between am I really getting a return on my investments? It’s very hard to measure, and you know, it’s very hard to determine whether or not there’s been success in that. So, you know, it could just be temporary, again economically driven or something like that, but we’ve actually seen a slowdown in interest in the wellness programs.

Christine Arnold: I agree that the disease management thing is slowing down. And when you talk to employers and you talk to employer groups, the new, new, new thing is the kind of the Medical Home. So it’s the concept that, you know, this disease management company over here that’s doing cardiovascular and this one over here is doing diabetes -- well, hello, she’s diabetic and has a cardiovascular problem, there’s a cause-effect thing. So the whole fragment in disease management thing doesn’t work, and none of us want to get a call from our health plan telling us how to make ourselves feel better because like that’s not something you can really trust, right? So, the sense is that I think the managed care companies risk losing the function of managing care, which -- and I don’t know what you want to call them -- but we’ll talk about that next year. The doctors are the place where we think that care should be managed. So I think we need to overhaul the doctor’s office and these Medical Homes are all about changing the profile of the doctor’s office. In stead they’re being told they’re running around at the front desk while you wait for half an hour with a paper file so that you can sit there for ten minutes and have the doctor look in your mouth and ears and eyes and take your blood pressure as if you’ve just swallowed a golf ball. I mean those days are probably over. So I think what we’re going to have is new specialists in the doctor’s office who can really help to coordinate care. And Medical Home is all about that. We got rid of the big group practices with multi specialties when the physician practice management model fell apart, but now I think we’re trying to implement more coordinated care at the point of the physician and, you know, there’s probably a place for a whole new specialty in the medical field, take it out of the disease management companies, the fragmented disease management companies, take it out of the managed care companies, and put it in the purview of the doctor. And I mean there are some doctor practices that do really well at this and there’s many that don’t.

Paul Ginsburg: Are insurers in a position to somehow get this to happen?

Christine Arnold: Well, I mean that’s why we need this adult supervision from the policymakers that we’ve been talking about, right? So, you know, I mean someone has to come in and figure out okay what are the best practices? What should we be doing for the person that has diabetes and cardio blah blah blah and she’s noncompliant and he or she is gaining weight and smoking and dah dah dah. Fine, what do -- how do we treat this person? What’s the protocol? And then which doctor groups and hospital groups do best in implementing that? And then steer them. So the health plan on steroids where we’re paying the group, you know, double for doing the right thing and half for screwing up and all their people winding up in the hospital. That’s an opportunity for a managed care company to do something interesting, but I talked to the managed care companies and they’re like well, Christine, do you want us to recontract with all of our hospitals and doctors? Yes, yes, I want you to recontract with your doctors and hospitals or someone else is going to do it. So in the absence of managed care companies doing this and, you know, I’ve been talking to venture capital firms and, you know, private equity firms about hey, here’s an opportunity. The big companies, they’re not there; their heads aren’t there; they’re not there.

Paul Ginsburg: Yeah. Actually the reason I asked that is some interviewing we were doing about high performance networks and when we would talk to medical groups, you know, they would tell us about this fragmented system that Aetna says I’m great and CIGNA says I’m nuts.

Christine Arnold: That’s absurd.

Paul Ginsburg: So in a sense it almost means that except in some states where there’s a very dominant Blue Cross Blue Shield plan, it kind of looks to Medicare as best positioned if an insurer is going to do anything to do this, but then Medicare plods along and it’s going to do demonstrations for a few years.

Christine Arnold: Study it.

Paul Ginsburg: Study it.

Robert Laszewski: I think the policy implication here is that as the managed care industry and physicians and disease management companies take a step forward in trying to manage the cost of care and improved quality, the American people have been taking two steps back. You’ve seen any number of studies recently about how the health of Americans is declining. The most recent one was the Harvard-University of Washington study that found that 20 percent of women see now a decline in their life expectancy and obesity, diabetes, and smoking is right at the top of it. And that’s -- and you’ve heard that the youngest generation risks being the first generation whose health is going to be worse than the prior generation. So, you know, the fundamental problem here is that you can take a step forward in the market or government or anywhere else in terms of quality of care, and the American people take two steps back on you and health declines.

And I think to your point, I was at a Blue Cross conference composed of sales managers a few weeks ago, three weeks ago, and one of the questions they kept asking was about this insurance underwriting cycle and if, in fact, we’re seeing under pricing. And the answer was no, you know, I mean the pricing environment has been the same, it’s been pretty static. You know, you’ve always got somebody undercutting you and underbidding you and -- but people are not behaving any differently from a competitive standpoint than they ever have before. But what they were complaining about is the Blue Cross sales executive would say to you, but you know what’s really different about it now is I’ve got -- one guy said I’ve got like twenty alligators picking at me constantly. Where we have the whole package before, now I’ve got a disease management company trying to take the disease management piece away. I’ve got a PBM trying to take the PBM piece away. And so what’s happening out there is that we’re getting more fragmentation in the market, to your point, and rather than having one organization kind of controlling the whole thing, we’re getting a lot of different organizations, a lot of different specialists. And when you get the specialists pulling the pieces away, whether it’s wellness, PBM, disease management, whatever it is, you lose the integration. And when you lose the integration, you lose the ability to deal with these things. So we’re probably going a little bit backward, but the American people are pedaling backward faster than we are.

Christine Arnold: Yeah, but part of that’s an ERISA problem. I mean it’s discrimination if you charge the person more for premiums if they were, know what I mean? So your hands are tied from a benefit perspective. What you should be doing is noncompliant people should have benefits taken away. You can’t do it. So policy implication, change ERISA.

Robert Laszewski: The policy implication is that we’ve got to hit this obesity epidemic, etc., head on and stop ignoring this huge elephant in the room that’s creating more problems for us than anything we’re doing in the marketplace.

Christine Arnold: No carbs outside kids.

Paul Ginsburg: Yeah, sure. Josh or Matt, do you have any comments on this?
Okay, we’ve got about five more minutes of questions, so it would be a good time for you -- for those that have questions -- to ask from the audience that want to do it by card rather than by microphone to write them out and pass them to -- I guess have everyone pass them to the center aisle. It would be easier for the staff to pick up. Got a few possibilities, one is I want to ask about consumer-driven healthcare. What’s happening in that sphere? What are its prospects? Is that still -- is that evolving into something that’s going to be with us for the future? Is it tiring? Josh?

Joshua Raskin: Yeah, I mean, I guess, I don’t know. I think about, you know, the search for, you know, the Holy Grail every couple of -- every decade or so is when, you know, we hit a tough economic period, a recessionary period, and that corresponds with an inflating health premium period. And so, you know, I think of these as sort of those intolerable periods of history where the employer groups are seeing declines in their revenues and net income, and yet they’re being asked to pay an accelerating amount for their healthcare benefits. So we think of, you know, whether it was the HMOs first or what have you, we need something new. And so, you know, I think that was what the idea that really generated this idea that hey, you know, let’s get something new consumer-directed health plans. You know, the uptake’s been I think, you know, steady, but relatively slow still. You know, we’re still at may be 3-4 percent market share in the United States. I think it’s an attractive product ultimately because depending -- in either funding arrangement, you’re still saving money, you’re still paying less. I don’t think the health plans necessarily have a huge incentive to promote these from a financial standpoint other than, you know, the ability to retain their membership or attract new members to the plan. So, it’s been a little bit slower. You know, I think there are certainly some benefits to it. I love the idea of, you know, more transparency and to quality, and even into cost. I think that’s useful as well. But I think it’s, you know, it’s going to continue to sort of chug along a little bit slower than expected.

Paul Ginsburg: Matt?

Matthew Borsch: Just that I would say that, you know, we went out and met with a number of large, you know, national employers late last year, and I was a bit surprised at just how skeptical universally those employers were about the consumer-driven health plan products, I guess with one exception. But, you know, at the other end of the scale and the individual and small-employer market, you see these products and, you know, whether it’s consumer-directed health plan or not, the really, you know, high deductible, lower benefit products, they’re just being adopted out of desperation as the only alternative to having no coverage at all.

Christine Arnold: We’ve seen a stalling out of the products in the small and individual market, which means it’s not expanding the health insurance market. Where we’re seeing the growth is in large group, which means it’s just -- it’s eroding benefits for people who already have coverage, and exacerbating the collection problem that the hospitals are having, which is resulting in the hospitals raising pricing because now - so it’s raising costs overall ironically. That this vehicle that was supposed to reduce the number of uninsured and lower costs is ironically raising hospital pricing and raising costs for everyone and not reducing the number of uninsured, which is interesting.

Paul Ginsburg: Good. I’d like to just ask before we begin questions whether any of the panelists have something they’d like to add - a question I didn’t ask or some final thought about a discussion? Doesn’t look like it. Okay.

Now I’ll invite questions from the audience and actually let me start when people are coming up with -- this one with healthcare reform looming, how -- wait a second, that’s what I asked. Let me not do that one. That was our first question, may be someone came in late. "Why are" -- this is for Christine -- "Why are hospitals only collecting 50 percent of co-pays and deductibles? Are people not able to pay? Are hospitals not aggressively going after them? Is it a structural change in benefits, higher co-pays and deductibles? And do you see a similar situation for Medicare patients?"

Christine Arnold: Okay, so for Medicare patients, there are provisions in the hospital -- the panelists, the next panel probably could give you some information on this, too -- but for Medicare, there’s provisions where you can go back to Medicare and get patient cost sharing if you’ve been unable to collect it. So it’s less of an issue for the Medicare population in terms of collections for doctors and hospitals. The average co-pays and deductibles are in the $1500 to $2000 range for the individual and small-group market, and people just don’t have $1500 to $2000 lying around. And the out-of-pocket maximums can go up to $5000. So, you go to a hospital. The hospital’s in network. The doctor’s in network. The anesthesiologist wasn’t. Well, what are you going to do? Undergo surgery while awake? No. Right? So, you wind up with these hidden - I mean I actually went through this -- you wind up with these hidden costs and now you’re out of network so now it’s more than the $2000 which was your co-pay or deductible because now you’re into out-of-network territory and there’s a whole new out-of-pocket max which can go to $5000 or $10,000. So two years ago, Community was saying that they were collecting 70 percent of co-pays and deductibles, as were most of the other publicly traded hospitals, and now they’re saying they’re collecting 50 percent. And it’s simply a function of co-pays and deductibles rising faster than incomes. Good. Here’s another question. I guess no one wants to use the microphone. But -- Oh, there I’ve got someone. Sir? Go ahead. Could you identify yourself?

MR. FERNBACH: Yes, I’m Harvey Fernbach, M.D. I’m with Physicians for National Health Program. We believe in single-payer national health HR-676 Conyers. Obviously we believe in the (off mike) approach to health insurance and replacing it with government-financed care. I was -- my question is I was pleasantly surprised to see an article by William -- a quote from Wilbur Ross who’s an industrialist out of New York who came out for single-payer. And the question is why are employers not seeing the benefits of going for single-payer, which would level the playing field between GM and Toyota of America. If you have a laying off of part-time workers -- I mean employers would come to -- employees would come to their employer with health insurance right there. What is the reluctance to do a very obvious thing?

Robert Laszewski: The best answer I can give you -- I’ll give you a two-part answer. The first part is the reason most employers aren’t in favor of single-payer is that the people who run these companies are Republicans and they don’t think that way. But what is really interesting --but I think you question opens up a really interesting avenue here, and that is, you know, there is this debate going on again -- McCain, Obama, it’s in the Wyden-Bennett bill, about moving away from the employer-based system to a market-based system, okay? So I think that an even better question is why aren’t employers embracing this notion of moving away from the employer-based system that Wyden- Bennett and McCain this opportunity that they’re giving them for the reasons you just asked? And what I have been really surprised at over the last couple of months is the way the employer community continues to really want to embrace employer-based health insurance. And I say that as being surprised by it. Employers continue to believe that it is really important to compete in the workplace as part of the wage and benefits package, even though healthcare trends at 10 percent and wages trend at 3 percent. But in talking to, you know, advocates for Wyden-Bennett, for example, they continue to get a lot of opposition on the -- or at least nothing much more than a lukewarm response from the employer community -- and it is surprising, but it’s there.

Christine Arnold: Well, a couple of observations. One, no one looks at Medicare and says what a progressive -- I mean, what a progressive program, it’s doing great disease management and really coordinating care. And we just got a drug benefit, what, two years ago? So I think part of it is that people look at Medicare and if we’re not able to say this is something we all want to be in, then how can we embrace it, as something everyone should have, number one. And number two, these are business men, so they don’t want the government making cars, they don’t want the government doing their business, and so I think they’ve kind of aligned with the business people that are walking in that are running the hospitals and used to be in the physician practice management business and are running the managed care companies.

Paul Ginsburg: Why don’t we go to the next question? Yes, Amy?

Christine Arnold: Amy Taylor, (off mike). This is a question for Christine. You said that it would be good if the insurers kept better records so we really knew who the good doctors were?

Christine Arnold: I’m not sure they should keep better records; I think they should share the data.

MS. TAYLOR: Okay, they should share the data.

Christine Arnold: So there’s a huge battle because you’ve got WellPoint and United and some of the other big ones --

MS. TAYLOR: But here’s a question from my experience and those of my friends. There aren’t that many really good doctors out there, particularly -- okay -- particularly among internists, primary care doctors, gynecologists. Either they don’t take insurance or their practice is full. Okay? How do you handle this in the -- not taking insurance obviously if people paid doctors who, say, talk to you more --

Christine Arnold: See, that’s what my health plan on steroids is supposed to do. It’s supposed to pay those doctors double, like really stretch the limits of what you’re going to pay the best and the worst. So guess what, his practice may not be quite so full if he’s going to get paid double, right?

QUESTIONER: Who’s going to pay the double, the insurance company or the patient?

Christine Arnold: There’s 40 percent cost savings right place right time to be had, so there’s a lot of room here to stretch the limits. And what you -- Care Focused Purchasing, which is an effort I was involved in at Mercer, saw a little bit because they’re having a hard time getting really good data in and the health plans won’t share the data. So that’s the first impediment, but once you get beyond that, you can profile the doctors and hospitals. The goal is to cut out the bottom, you know, 10 or 20 percent, and what you’re going to do is you’re going to start to, you know, move the worst to better. And then -- and so you’re also going to improve physician practices and the whole Medical Home concept is about NCQA and some of these other organizations having specific criteria that you meet in order to improve your practice. So it’s about initially carrots and sticks, double and half the pay, which will improve the availability of physicians at the high end and also will move the ones at the low end to the high end.

QUESTIONER: Okay, so you’re talking really long term?

Christine Arnold: Yeah, this can’t happen overnight. I mean we need the data to really determine -- we need to agree on what the best practices are first of all. That needs to be done by medical societies, and we’ve got that. We’ve already got the medical societies that came together on the Medical Home. We’ve got NCQA with the criteria. So we’ve started there. Now we need to identify which doctors and hospitals are doing it and which ones aren’t. And that’s where we can’t have everyone hoarding their data because if you’ve got, you know, someone who does pretty complex cases or, you know, is say operating on cancer patients, he may do, what, five operations a week? Someone with 20 percent market share only sees one of them.

QUESTIONER: No, you need risk adjustment for anything --

Christine Arnold: Yep, risk adjustment and you need pooling of the data, and I think the government policy role initially is to force the pooling of the data and start by opening the Medicare data base.

QUESTIONER: Okay, thank you.

Paul Ginsburg: Okay. There’s a question here about special needs plans, which we didn’t get into when we were talking about Medicare Advantage. Do you see them playing an increasing role in coming years? And, you know, for those -- you know, the special needs plans are the coordinated care plans that are focusing on particularly high-risk populations.

Joshua Raskin: Yeah, I would just jump in. I’d say, you know, two things on that point. The company that’s really led the way with the special needs plans and the SNP plans has been UnitedHealth. They’ve got literally ten times as many as the next plan, or may be eight times as many as the next closest plan in terms of total membership. And for them it has been a very difficult population this year. They’re seeing all sorts of adverse selection issues. So, you know, the plans that have done well with some of the special needs plans in terms of costs, etc., are ones that are rolling out, you know -- I mean special needs plans that aren’t really special needs almost. I mean they’re just general Medicare/HMO plans where they’re getting higher reimbursement and you’ve actually seen, you know, some Congressional efforts already to focus on that, you know, Medicare in the new regs. You know, they suggested that I think you needed to have a minimum of 90 percent of your SNP membership actually being special needs. So I think it’s an interesting concept and I think with isk adjustment that that can work out, but the plans that seem to be doing it right, like a United, really targeting the sickest patients are getting hurt economically. So you’re going to see a reduction in their membership next year, whereas those that are sort of, you know, looking for, you know, a special need being, yeah, elderly, I mean or something crazy like that. It just seems like that’s where, you know, they’re making money, and that’s going to slow down. And CMS is already on top on that I think.

Paul Ginsburg: Yes, Matt? No? Okay. Let me see. One extent that you see is international trends in the use of evidence-based medicine in influencing clinical practice pricing and payments for healthcare in the United States.

Christine Arnold: I don’t get out much, so I don’t have anything to --

Paul Ginsburg: Okay. May be we don’t have an answer to that. Here’s -- duals and PDPs. "Do you have any sense of how CMS’s risk adjusters for low-income subsidy enrollees and Part D are working? It seems curious that some insurers seem to argue that they’re losing money on" - guess that’s "duals, enrollees, and might even be bidding strategically to unload these enrollees while other insurers seem to be glad to have 75 percent of their PDP enrollments in -- I guess dual enrollees." Bob, did you want to answer that?

Robert Laszewski: I just have the same observation; I don’t really have an answer. In my blog earlier this year, I posted on this that the two biggest players in PDP -- Humana and United -- were unloading, and the smaller guys with less data were uploading. So I think it probably says something. It probably has to do with market sophistication, not anything else.

Christine Arnold: I think it’s formularies. So if you look at the top, you know, kind of ten drugs taken by seniors, you’ve got United and Humana saying yes to those drugs and the most they can charge a dual for is $5. And you’ve got companies like WellCare, Health Net, and Coventry, who seem to be doing okay, saying no, it’s not covered. If you want the drug, no. So I think it’s a function of formulary management, and I think the policy issue that we’re running - that we’re going to run into is either the big companies, United and Humana, with all these duals and, you know, 40 percent of PDP members are going to do what they need to do for their business, which is cut the formularies, and create a potential issue with these nursing homes with these frail, elderly seniors. Or they’re not, and we’re going to continue to have this issue of them losing money. So for example, Celebrex, Lipitor, Prevacid, Toprol, and Xalatan -- I’m pronouncing these all wrong, I’m not a pharmaceutical person -- Xalatan -- none of those are covered by WellCare, and they’re all covered by Humana United. So, duh. Of course United and Humana have a problem.

Robert Laszewski: I think that data’s really good, Christine, because it does point to a policy issue and that is you can’t control drug costs if you can’t control formulary. And one of the problems on the Hill, the Democrats early last year tried to pass a bill that would allow Medicare to negotiate drug prices, but they gutted it -- it never passed -- but it was gutted if it would have been passed because you couldn’t play with the formulary. You had to offer everything. So, you know, the short answer to all of this is if you want to control drug costs, as they do in Europe, you’ve got to be able to limit what’s on the formulary.

Christine Arnold: Right, and I think the risk -- I mean may be we think about a risk adjuster just for the duals because the risk adjuster had reimbursed companies for 80 percent of costs above expectation once they got 2.5 percent beyond what they bid. This year the risk adjuster went to you only get half coverage once you’ve gone 5 percent, and 5 percent’s your margin. So part of the problem is that you saw stratification of the formularies, which stratified the sick seniors at a time when the training wheels were coming off the risk orders.

Paul Ginsburg: Good. I think we just have time for one more question. Sir?

MR. ROSENBLATT: Bob Rosenblatt, freelance writer. Christine mentioned there’s a real problem of noncompliance by patients with what they should be doing, and Bob talked about American people pedaling rapidly towards obesity. How far are you prepared to go to be tough with patients? For example, should insurance companies say you’re obese, I’m giving you a free gym membership and I’m giving you a consultation with a nutritionist. If you don’t -- a year from now if you haven’t lost 25 pounds -- your co-pays and deductibles will go up significantly. Should insurance companies do that?

Christine Arnold: Well they can’t now. It’s a violation of ERISA and the ADA. So, you know --

Robert Laszewski: They’re worried that it is, yeah.

Christine Arnold: Well, they won’t do it; employers will not do it; go to the Mercer employer form. So what they do is they say we’ll give you dollars to enroll in a program and we’ll give you, you know, I’ve got $50 to take the Mayo thing or I lied.

Robert Laszewski: You know Christine, I think you just -- you know, you just hit on it. Employers won’t do it. Employers will not do it, and --

Christine Arnold: -- which is why disease management and managed care for managed care companies isn’t working. They’re getting, you know what I mean, they’re getting my fictitious Mayo thing in, you know, so that’s why it has to come from the doctor’s office. The doctor’s office knows what I, you know, what I weigh. He knows what my cholesterol is, so we need to take all of this from the realm of the patient and the disease management company and the managed care company up to the doctor.

Robert Laszewski: I think it’s also a place where conservatives have a good argument for moving the system to one of individual responsibility and individual accountability, because until there is that direct responsibility, we’re not going to be there. There’s also the overarching issue, I think, of confronting obesity head on in this country which no one wants to do, not just the employer. The way we confronted smoking over the last 30 years, and I don’t mean that by having (off mike), I mean that by confronting it head on and talking about it and dealing with it and saying it’s a really stupid thing to do to yourself, which we’re very reluctant to do. Half of it I think is bully pulpit.

Paul Ginsburg: Good. It’s time for a break. I want to thank the panel for an enormous job. And we’ll restart with our second panel.

(Recess)

Paul Ginsburg: Okay, it’s a good time to get started if you could take your seats. Pleased to have this second panel, and we’re going to focus on a range of provider issues, and I’d like to begin with some questions about the underlying -- something we discussed at the earlier panel -- the underlying spending trends from the perspective of those that look at the provider sector as to what you’re seeing for hospital inpatients and outpatient facilities, physician services, you know, what is happening to utilization, and what is happening to prices.

And you’re the hospital equity analyst, so why don’t you begin?

Adam Feinstein: Yeah, when I - Thank you, Paul. I appreciate being part of the panel. Just -- maybe just to kick it off in terms of utilization trends. It’s been an interesting year. I’d say, you know, more so than any other period in our history, really seeing the economy having an impact everywhere. So, (inaudible) side of healthcare is not being impacted by what’s going on more broadly, whereas this year we really, you know, are seeing an impact. Geoff and I were talking earlier and just saying that the month of May I heard so many anecdotes with different types of healthcare companies about a big slowdown in May, so hospitals, labs, surgery centers, senior living, you know, pretty much any type of company that I look at is all slowdown in their utilization trends.

Now, you know, certainly I guess the big question everyone’s trying to figure out is, is that going to be something we’re going to see for the next several years, or is this just a temporary blip, and, you know, the answer is I don’t know but, you know, clearly, you know, I had been somewhat shocked just by the magnitude of the impact. And, you know, you heard from the other panelists here talking about managed care with more cost sharing and what’s going on in the benefits market, you know, what would be the ultimate patient having more (off mike) in here, we’re looking for modest utilization trends in 2008. But certainly I do think with the demographics, it will come back over time, but that’s probably been the biggest surprise for 2008.

Paul Ginsburg: Yeah. Adam, could I push you in some detail. You mentioned, you know, a striking change in May, presumably due to the weak economy, and, you know, what kinds of services are feeling the impact? I would think that the services that are more discretionary?

Adam Feinstein: Yeah, it’s a good question. Certainly you would think that, so particularly elective surgery. So, we saw a big slowdown there. So, as I look at surgical cases, there’s been a slowdown in both inpatient and outpatient, but, you know, clearly, you know, that’s been one of the areas we’ve seen the biggest slowdown, and then, you know, it goes down the food chain, you know, in that if you look at procedures that, you know, are purely discretionary, like laser vision surgery and things like that, we’ve seen a real extreme slowdown. But even, you know, procedures that are more serious than that, I’ve been, you know, hearing a lot of anecdotes about a slowdown as people delaying their treatment because of just what’s going on in the economy.

Paul Ginsburg: Sure. Anyone else?

Kevin Ponton: I’d agree. I’d also note that I tend to look at what you’d consider weaker hospitals, hospitals that have a weaker financial strength and your overall aggregates in the country, and I’ve noticed that your area of -- your geographic location is very important. If you look at the aggregate numbers for the United States, you’ll see certain things, but you’ll be able to notice that if you look in some of the states that have been hit hardest economically or have been suffering economically for the last several years -- take for example, Michigan -- you’ll find that those facilities in those states to be like the canary in the mine as an indicator of what the rest of the country might be able to go through, and the only example I give is the stark and dramatic effect on their financial condition of maybe even two months of experience with lower patient or value indicators for a period of, say, one or two months, and this can be the difference between profitability and nonprofitability for these places, and given that 85 percent of the hospitals in the country are not for profit, we’re talking profit margins. As you heard this morning, 2 percent is great, if you will, compared to the stronger interpretations in another market -- in a for- profit market. Therefore, any kind of a drop in utilization will have a much quicker effect on their financial performance and much more deleterious if it’s dropping off.

Paul Ginsburg: Yes, Geoff.

Geoffrey Harris: The only thing I would add is the one sector that seems to be bucking this trend is -- the -- perhaps understandably, the psychiatric hospitals are actually reporting very strong volumes and some have attributed that to, in fact, stresses related to the weak economy, and that report has come not only from the providers of services who’ve seen their volumes go up but also from -- the payers who are paying for those services have seen higher than expected utilization trends.

And then just to add to what Adam said on the discretionary areas, yeah, things like, again, laser vision surgery -- these aren’t necessarily directly in hospital. Any kind of cosmetic surgery, dental implants -- these are all things that have experienced very dramatic drops in utilization, again, because they’re often paid for out of pocket or using credit, which is very tough to get right now.

Adam Feinstein: I’m sorry -- just to add one more thing. It’s somewhat interesting. I just bring it up, because it’s something that you will be hearing a lot about. Even births are down. Some of the companies that, you know, manage neo-natal intensive care units have been talking about a real slowdown there, and I first heard it and I thought maybe they were just blaming some of their business issues on that, but the more hospitals that I spoke to I’ve heard anecdotes about a slowdown in births. So, that’s a more recent data point that I thought was interesting.

Paul Ginsburg: Yeah. Now, we’ve -- often in our work we’ve picked up reports about, you know, substantial capacity expansions and hospitals, physician-owned outpatient facilities, and how are you seeing them play out in the markets? In a sense are there gluts of capacity developing or with physician self-referral incentives? Are they keeping them full and --

Kevin Ponton: There’s a recent - I believe just this morning -- reference to - I think it was a Georgetown study that showed that the physician-owned specialty hospitals are showing a surprise-surprise, much higher utilization generally in their areas. Now, I think this is a historical commentary over the last three or four years as opposed to what’s happening this year. But certainly from my point of view, I don’t see it so much as a glut. I’m not commenting -- specifically not commenting on your overall national figures, which may show something different, but hospitals that are on the lower end of the food chain financially are certainly not over-expanding. They haven’t got the dimes and the nickels put together to do that, so that would be my comment from that point of view.

Paul Ginsburg: Yeah. Okay, what --

Geoffrey Harris: I might just add, again, a little tangential but just going back to the inpatient psychiatric area, there’s actually shortage of capacity. There was enormous capacity taken out of the system in the ’90s. In fact, about half of it was taken out of the system, and now with demand up those companies and providers are generally expanding capacity and are operating at capacity.

Paul Ginsburg: Okay, and the other thing I wanted to ask you is about new technologies. Is there anything that the audience should be aware of as far as new technologies that are growing rapidly and have potential to have a big impact on spending or on just other aspects in the marketplace?

Geoffrey Harris: One area that -- it may sound a little bit like science fiction but is actually beginning to take hold now - is robotics. You’re seeing hospital systems who have invested in certain robotic technology such as intuitive surgical -- the da Vinci system, for example, which is a robot that’s used for various surgeries, including prostate surgery, and is shown - actually shown better outcomes, but you’re seeing a little bit of an arms race - for example, in facilities buying some of these new technologies and them marketing them very heavily in order to drive volumes. So, one of the sales pitches that an intuitive surgical would use to a hospital and the physician staff is, number one, patient outcomes would be better, and they do have some data to support that, but, number two, you can advertise that you have a da Vinci robot and it will drive your volume.

Adam Feinstein: And maybe just a follow-up to Geoff’s comments, because that’s a very specialized product. You know, it’s only been a slowdown in terms of new medical technology having any major importance in the marketplace, and one remembers a few years ago we had -- drug-coated stents came on the market and orthopedic implants, and there was a lot of spending on those items. One of the things we’ve noticed in the past year -- we’ve seen a real slowdown in terms of the rate of growth in medical supplies for hospitals, so they’re actually starting to get some leverage, and you really -- you know, the feedback that I get just from my own analysis is that just because you hadn’t had a lot of new products come on the market, that always tends to accelerate the growth rates as they come on at higher price points, so outside of the, you know, intuitive surgical robot and a few other more specialized things, the overall medical supply spending seems to be slowing.

Paul Ginsburg: The previous panel talked a little bit about the issue of leverage between hospitals and insurers as far as price with - you know, with some really different perspectives on it. For those of you that do follow hospitals and other providers, what’s your perspective on what’s happening on price leverage?

Geoffrey Harris: I think right now the hospitals seem to be having a lot of success in increasing unit prices. One of the key factors -- and the prior panel may have discussed this, but one of the key problems facing the payers right now is not so much utilization -- in fact, many of them have said that the trends are in line with their expectations, but they’ve had significant problems with dealing with unit prices, which -- and the flip side of that, of course, is positive for the -- you know, for the providers. I think there’s also been some perhaps increase in case mix, so it’s a little difficult sometimes to tease out what’s pure price increases and what’s increased in acuity. But I would say right now the providers have some pricing leverage.

Paul Ginsburg: (off mike), Bob?

Robert Berenson: Yeah, I wanted to make a comment on the differential between hospitals and physicians in this area. Hospitals clearly, after years of horizontal consolidation, I think are in a position now to have leverage in negotiations. Physicians never were as well organized, didn’t have the same ability, and our last round of site visits pretty much again confirmed that hospitals seem to be in a better position than physicians.

However, there’s a couple of countervailing trends in that. One is the single specialty consolidation that has been occurring with -- generally not in the primary care specialties but in some of the subspecialties -- larger groups getting together within the limits of, you know, antitrust enforcement, which are pretty broad, to have more leverage.

And the second trend that we’re actually writing about now is increasing employment of physicians by hospitals for a number of reasons, but one of the results of that employment is that the hospital helps negotiate on behalf of the physicians and are able to -- physicians are able to get a better deal as part of that kind of organization.

Adam Feinstein: And can I just add maybe one thing here?

Robert Berenson: Sure.

Adam Feinstein: In -- Josh spoke earlier and, you know, we certainly try to look at it from the big picture in terms of the hospitals and managed care. You know, one of our theories is that post-tenant healthcare, so meaning, you know, back in 2003 after the big crises (off mike) came out, it really lacked a lot more scrutiny over hospital pricing in general, so hospitals lost some leverage because of that. It really, you know, brought this under the microscope. And now that time’s gone by and, you know, the HMOs are able squeeze a little bit from the hospitals -- to, you know, Geoff’s point -- I feel now we’re starting to see things get a little bit better. But, you know, just to think about it, it wasn’t like pricing got bad for hospitals -- it’s been very good this whole time -- but just, you know, the increment, it seems like it’s gotten a little bit better. It seems like there’s clearer contract language. They were getting squeezed with higher stop loss thresholds and not getting those payments, that maybe they were getting another pass, so I would just say, you know, with the tenant pricing scandal now having died down, I think that’s healthy (off mike) industry.

Kevin Ponton: One note that I’d make and that is that leverage only comes as a result of, you know, having something that the third-party payers or the insurers need, which is demographics in market share. If you haven’t got either or both, you haven’t got the leverage.

Paul Ginsburg: In fact, I was going to just ask you about the differences among hospitals and whether we have a world where the very prominent, well-known, important hospitals have stronger leverage than they’ve ever had before, but the run-of-the-mill hospital -- it’s a different story -- and could you elaborate on that?

Kevin Ponton: I would agree very much and emphasize again that your demographic position as one of the smaller "run-of-the-mill" hospitals or market share ability to improve the market share of one of the larger, better position providers is key, and the larger, better position providers are in a better position for a reason. They’ve been doing it for a number of years, and that’s part of their strategy. A number of the smaller facilities are either geographically further away, away from those population areas, and to the extent that they have a sole lock on their community, that may be an advantage in their case. But if they’re one of two or three in a very sparse community, they’re not going to have the leverage and they’re not going to be suited -- they will not be courted by the larger systems who would be in a position to make them better off financially.

Want a turn?

Paul Ginsburg: Yeah, and then, Kevin, is there a trend in the sense of the leverage of the less-favored hospitals? Is it declining?

Kevin Ponton: Let’s put it this way. So much of -- in my view, so much of the integration and so much of the system building has taken place to the point now it’s almost a level of stasis, and you see that, all right, what’s left there is left there. The very, very weaker, smaller hospitals that are in isolated service areas have taken advantage for the last five or six months of -- five or six years of the critical access program, which has put them in a position of being -- of getting a Good Housekeeping seal of approval for the purposes of reimbursement. Those who don’t either have a very close, strategic relationship with a larger system or critical access status for the purpose of geographic - for the purposes of reimbursement are -- let’s face it, they’re going to be losers. They’re going to be losers, if not already experiencing it. So, yes, I’d say that there’s a period of stasis right now, if not living somewhat high on the hog for the last year or so -- for the last several years. This year has been the deciding period, and from we can -- what I’m expecting is that things are going to be trending downward. It’s going to be much tighter for hospitals to operate going forward whether they’re in a large system or smaller system -- individual.

Paul Ginsburg: What happens when, say, a physician-owned outpatient facility comes into the market? You know, what kind of pricing leverage do they have, and do they actually -- you know, some of their potential to siphon some patients away from the hospital outpatient department, but do they have actually impact the hospital pricing leverage as well?

Kevin Ponton: I’d say that it’s not quite as straightforward to my view of a physician coming into an area. Who wins in a situation like that is very much the result of a complex dance that’s done between the physicians in the area and the hospital and how the history of that relationship, the cultures that are involved, all determine who’s going to win out, if you will, in that situation. It’s very much an individual situation that plays itself out in a number of different places in the country.

One example I saw recently in the State of New York is a situation where a hospital was reorganizing itself due to the stringent requirements of the State’s recent plan to reduce unneeded hospitals, and in the same group or same area where a physician group was very, very strong, the hospital was restructuring itself; it had new management come in -- they brought in a manage from the Minneapolis area who was very, very, very well versed in physician- hospital relations, and despite the local situation where the physician group had been throwing its weight around, to put it mildly, the two of them are very much working together now to the advantage of both, and who will win eventually won’t be known for five or six years. But it’s been a complex stance, and one of the factors that made that dance different was that the hospital structure brought in a manager who knew how to dance the dance, and we’ll see in five or six years who ultimately wins or whether they end up working together as I would hope.

Paul Ginsburg: Yeah, Bob?

Robert Berenson: Yeah, and in the health system change work we do, I think we would agree completely that it really varies by community and by sort of local culture. However, there are some services that have just moved out of the hospital, so a number of hospitals no longer do GI endoscopy. I mean, that is just basically done by gastroenterologists working out of ambulatory surgery centers, endoscopy suites. In fact, there’s a fight going on between the GI docs who want to do those colonoscopies in their office versus those who have ownership interests in the AFC, but some of the hospitals were telling us they couldn’t find gastroenterologists to even do consults on sick patients because they were in their own facilities. So, there are some services that are just moving out. But I do agree that there’s a lot of variation.

Paul Ginsburg: Geoff?

Geoffrey Harris: I’d just say that in the for-profit world there’s certainly been cases where physician-owned either outpatient operations or physician-owned hospitals have taken a very profitable hospital and actually turned it into a money loser in a year, and it can happen very quickly.

Paul Ginsburg: Good. I want to ask the panel what their perspective is on the cost-shifting phenomenon, you know, the degree to which if a hospital, you know, finds more of its patient bases uninsured or is, you know, feeling tighter Medicare and Medicaid payment rates. To what extent can it shift this to insurers or to what extent does it really have to eat those reductions?

Adam Feinstein: Maybe I’ll kick it off. I mean, you know, cost shifting has, you know, been a big part of the U.S. health system for a long time, and, really, one of the, you know, major issues but is something that we’ve been dealing and have witnessed, and clearly, you know, this whole idea of the insured subsidizing the uninsured and that’s just, you know, the way the business hasn’t worked. And, you know, I guess, you know, once again historically you would see the commercial payment cycle, the Medicare payment cycle, would run somewhat counter, but in recent years they’ve actually run, you know, side by side where we’ve had a good Medicare pricing cycle, and we’ve had a good -- I think good managed care pricing cycle for a hospital. So, I guess the question is, you know, who are we going to shift to this time around and I think that’s one of the big challenges. As we hear so much about healthcare reform, I think it’s going to be difficult to really think about, you know, who is going to take a greater share.

Now, you know, a somewhat related topic but certainly, you know, we’ll just go off a little bit here, is this -- you know, in terms of the Medicare side of things, I really believe that one of the reasons Medicare reimbursement has stayed positive is because hospitals are dealing with the uninsured and that debt has gone up so much, so I think it’s very difficult for Medicare to really make significant reductions to hospital payments without doing something about the uninsured, and so once again, you know, as we think about this broader issue, I think that’s, you know, one of the things that we’ve actually gotten. Reimbursement has actually held pretty well during this whole uninsured cycle.

Kevin Ponton: I’d agree, and I’d just emphasize that cost shifting used to have kind of a bad name to it when in fact, let’s face it, cost shifting is the American way of business. And in the same breath I’d note that for a long time gaming the system was seen as being a really bad thing that people don’t want to do. Well, in fact, it’s real. Gaming the system is something we should expect or you should expect, as policymakers, will happen. I’m here (off mike) to myself -- since when is gaming the system wrong? It used to be a knee-jerk reaction -- mine was you don’t game the system. Well, in fact, Americans have been gaming the system ever since the beginning of our tax policy. April 15th is when you game the system. We’ve been doing it forever. Let’s get real and realize that that’s how the system or the bureaucracy or the sector works. That’s how business works.

Paul Ginsburg: Actually, Kevin, I think we need to get straight what I mean by cost shifting, and since I’m not talking about charging different payers different prices --

Kevin Ponton: Okay.

Paul Ginsburg: But really if the payer that you have no control over lowers their price, how much can you change what you’re charging other payers?

Kevin Ponton: Okay.

Paul Ginsburg: And since -- so, I think from what you said before, you probably would say well it all depends on the importance of the hospital and networks as to whether you can cost shift.

Kevin Ponton: Yep.

Paul Ginsburg: Good. Maybe this will be something -- actually, this will be something that on the way up Bob Barenson mentioned to me well, what about the issue that’s so prominent today that usually I shy away from because these analysts aren’t in the position to pick up physician behavior, but there’s this issue, you know, what happens if Medicare payments fall 10 percent, this issue about access by Medicare patients? And, Bob, do you want to start off?

Robert Berenson: Yeah, let me start. We were actually in the field again. Health system changed in 2002 when a 5 percent reduction to physicians actually did occur, and there was almost no commentary about it, and we were trying to find out what the market of effects was going to be, whether private plans also adopted a 5 percent cut in their own fee schedules, and there wasn’t much going on. I think this time could be different if in fact -- well, to some extent even if Congress does in the end not go through with the 10 percent to physicians, which I assume they won’t go through with, one, there’s been an accumulative impact -- I mean, with the 5 percent cut in 2002 and then what is always the annual compromise is either a 0 or maybe a half percent increase, physicians really in Medicare haven’t gotten an increase. I mean, they’ve been flat for about seven years now, whereas most other provider groups have gotten their market basket or close to it.

So, it’s now becoming a financial -- accumulative financial impact. Physicians are increasingly frustrated and in some cases angry about the political process that every year produces this right down to the end, and they’re watching -- and this is the relationship to the discussion on Medicare Advantage -- they are watching health plans getting 13 percent more than they would get if the beneficiaries were still in Medicare, and under PAYGO rules, you have to pay for not exacting the physician cuts, and so the obvious place to do it is in Medicare Advantage, and yet Congress seems unwilling to do that under the threat of a White House veto. So, their frustrated about that, just the whole politics of it.

We increasingly I think are about to face a lot of physician retirements of physicians who got older with their patients - their patients got older with their physicians. They’ve moved in -- many of them have moved into Medicare. Those physicians are going to retire, not feel the same loyalty to those patients, and I think the new hope cohort of physicians won’t -- will be making more of a business decision rather than a patient loyalty decision.

And then I think it’s not as well appreciated as it might be the differences by specialty. A number of specialties really have to do Medicare. I mean, cardiology, ophthalmology -- it’s hard to do that -- provide those services if you’re not going to see Medicare patients.

A lot of primary care physicians -- actually, maybe 20, 25 percent of their patient population might be Medicare, and they have alternatives with an increasing primary care shortage that’s going on, which might in fact be exacerbated by the medical home. That’s a whole different discussion. So, I think we have a real potential, sort of, with this brinksmanship - is bringing to a fore of really having a serious problem of access for Medicare beneficiaries to primary services. That should not be discounted.

Let me just make one other point, because I did want to make comment on Medicare Advantage.

As some of you know, I do have some views on the subject, and Bob Laszewski mostly represented them, but I wanted to provide a slightly different perspective on private fee for service, which is part of this whole discussion, which is that it actually passed in the BBA of ’97, and it was a piece of legislation that the right-to- life movement wanted, and the idea was that no health plan, neither -- well no health plan would be able to do utilization review and essentially rationing at the end of life.

The Terry Schiavo kind of situation that -- and in fact there’s a prohibition against doing that kind of utilization review. There was some -- there’s a provision that permits health plans to offer a rider to people so that they would be specifically exempt from the cost containment associated with utilization management. It was not -- the uptake was zero or minimal.

There was actually a firm called Sterling that had a few thousand enrollees prior to the MMA. The MMA put real money into private fee for service, and then the more traditional health insurers figured out the opportunities there. But even now in the discussions about dramatically changing how the deeming provision, the right-to-life folks are still playing a significant role in those discussions. So, I just wanted to get that on the record.

Paul Ginsburg: Good. I’d like to move on to hospital consolidation and capacity expansions that -- one thing that we’ve noticed very strongly is hospital expansions into the suburbs, that we’ve strategies of building outpatient satellite facilities, some that are faced with deteriorating plans, have just closed it and opened up a new facility in the suburbs. I remember someone from Denver told me that all the private hospitals in Denver had some plan to leave Denver, or leave downtown Denver and go into the suburbs. And so, you know, have you been seeing this, and what are the implications either for access by those living in the central city and for the small independent community hospitals in the suburbs?

Adam Feinstein: I’ll kick it off. Yeah, you know, one of the -- we’ve been in a building boom in a hospital space for the last several years, originally emblematic of what was going on with the capital markets, the credit markets, and just the ability to access capital, so as a result we saw firms take advantage of that, so we saw a big increase in cap access over the last several with a lot of that being expansions into the suburbs, as well as this building -- you know, hospitals really everywhere. I would argue. and we saw a lot of replacement hospitals.

Now, what’s interesting is we haven’t seen new beds, so in terms of the number of hospital beds in the U.S., I would argue it really has not changed very much. However, within particular specialties and service lines, we’ve seen everyone invest in the same things, so everyone was building cath labs of years back, so there’s big competition in some of those areas.

So, you know -- so, clearly, I think this, you know, build-out in some of the suburbs, you know, had to do with what was going on with the housing market as well with more people moving to some of these markets. So, it made sense. So, you know, I think it’s more of a concern in the outpatient area where I think about just having too much capacity in certain markets. I think on the inpatient side where there’s still shortages, believe it or not, in certain markets. But, you know, I would say it’s probably a bigger issue for the outpatient side where now we have as many surgery centers in the U.S. As we do hospitals. So, clearly, it seems like, you know, that is where I think there’s been a big shift.

Paul Ginsburg: Yes. Any other comments?

Kevin Ponton: My -- real quick to make it quite simplistic almost is that the move into the suburbs hasn’t been so much a move away from particular systems or hospitals of urban origin; it’s been a move to embrace the suburb market share as well, expand their market share, frankly because they need that downtown core service areas as well, so it’s been less of a move-out as an expansion to grab that population as well.

Paul Ginsburg: Yes, Geoff?

Geoffrey Harris: And then on the for-profit side, just looking at the behavior of the change, they’ve tended to I think just follow demographics and population growth, so, for example, there have been a number of new hospitals built in Las Vegas. Shouldn’t be a surprise. It’s still a rapidly growing area from a population standpoint, and of course the public companies -- at least, historically, and then in the last several years -- have had ample access to capital to pursue those projects.

Paul Ginsburg: Actually, let me ask you about capital financing. You know, is access to capital difficult? Is it good? How much does it vary by hospital? What’s the access for the physician-owned enterprises?

Geoffrey Harris: I can comment on the sort of tangentially, like, feedback I’ve heard from companies that sell big-ticket equipment items, and the general feedback has been that in cases where physician groups were relying on financing in order to purchase something -- so, let’s say an image-guided radiotherapy machine. There, there has been a substantial impact of the credit crisis. In other words, these physician groups have not -- have had access to capital shut off and therefore they’re not buying some of the big-ticket equipment.

On the hospital side, I’ve heard less of that, at least, again, from the equipment companies that the hospitals -- I don’t know where they’re getting the money from but that they have generally been continuing on their equipment purchases in a similar fashion prior to the credit crisis.

Adam Feinstein: But just to follow up to Geoff’s comments. I mean, clearly, a lot has changed in the credit markets in the last -- really in the last couple of months over the last year. You know, as I know before was this somewhat unprecedented access to capital for everyone, including for-profits, not-for-profits. Everyone had the ability to raise capital. You know, things are definitely drying up there, so, you know, it seems like, you know, for 2008 when people had already set up these capital plans and they’re falling through with those, to end Geoff’s point, but we get worried as we look out a couple of years. It seems like everyone’s reevaluating their capital budgets.

You know, one thing that’s very different is the whole idea of auctionary bonds. So, these are bonds that were issued by not-for-profit hospitals and other entities where -- provide low cost of capital. We heard about a major health system that, you know, borrowed a billion dollars at about 3 percent. So, just think about that. And now because of auctionary bonds, you know, that market drying up, they had to refinance that debt at 9 percent. So, the cost of capital has gone up dramatically, and as a result everyone’s reevaluating the capital budget. So, I think -- you know, looking out a couple of years, I’d be shocked if there isn’t a slowdown in capital spending.

Kevin Ponton: In the not-for-profit area, the vast majority of hospitals in the United States -- not-for- profits get their capital through -- their external capital through debt issues. For the first half of this year, the amount of financing for not-for-profits has declined for the purposes of additional building and most of -- I would say -- I don’t know what percentage -- a very vast, big number percentage of their financing has been to replace or undo and unwind these auctionary securities, invariable rate on structured transactions, so it’s been basically refinancing their outstanding debt.

But, looking forward, my expectation is that you’re not going to see hospitals so much focusing on beds, building beds, as building rooms, building offices for physicians - medical office buildings to accommodate the growing number of younger physicians who are coming in with very different lifestyles from those who are retiring and saying the hospitals look by me, by my office if I’ve got one, or young medical graduates saying provide me an office, I’ll work for you. And that will, to my mind, be the area where you’ll see a good deal of construction activity rather than in beds.

Beds -- the bed issue I think is pretty much dealt with. It’s going to be more a question of providing space for younger physicians who are -- who, as a benefit to them and to ally them to the hospitals -- are being -- and offices built for them on a medical campus.

Paul Ginsburg: Yeah, in fact, actually till we get back on financing, glad you made that -- brought that up, the rapidly changing relationships between hospitals and physicians, and I wonder if other panelists would like to comment about that, particularly looking forward as to where they see it going.

Adam Feinstein: I was talking to a CEO of a major hospital chain recently, and he highlighted that this is probably the biggest issue that he thinks the hospitals are going to be dealing with. Just as more doctors are looking to be employed by hospitals, hospitals need to find a way to accommodate doctors, but the issue is, you know, the experience in terms of employing doctors has been very mixed, and, you know, clearly, you know, the models that were set up back in the mid-’90s did not work very well, so the challenge is now to set up these employment models but find a way for these models to work. And one of the biggest changes is whereas before they would pay a big up-front fee to buy that practice and then they would employ the doctor -- well, now, you know, there’s no big up-front payment. So, they’re just paying out of AAS salaries. So, you have seen the model evolve, but I think a lot of the hospitals feel like this is something that they’re not very good at, to be frank, but there’s a definite for in the marketplace, so I think these organizations that can find a way to bridge that gap will do very well, but, once again, there’s no obvious business model that will work.

Paul Ginsburg: One thing I haven’t heard yet is, in a sense, do hospitals know what they’re doing as far as -- do they really know why they want to employ physicians? Because I can think of an all range of different reasons. For example, they might want to employ primary care physicians because it’s so difficult to make a living in primary care and just to bring more into the community if they find it’s integral with their mission.

For some reason, they might not want to employ physicians. They don’t have to compete with them. Or -- and I could go on, and Bob could probably add five things to the list. But -- now, do you have a sense that hospitals know what they’re doing?

Kevin Ponton: Let’s put it this way. Looking historically, do hospitals know how to manage physicians? The (off mike) track record hasn’t been good. Do they know what they’re doing looking forward? Maybe they’re taking advantage of a situation which is very different from what it was five or ten years ago, which is physicians coming to them saying "employ me." Now, what hospital administrator who is concerned about maintaining market share and who knows market share is brought in by physicians -- their prime is physicians. It’s not patients; it’s physicians. Who in their right mind would say no, we don’t want to go anywhere near you. We don’t know how to manage you. They would say look, we’ll develop the ability to manage, or we will do our best. Our track record hasn’t been as good as it might have been. Doctors tend to lose about a hundred thousand dollars a year when we employ them. We can fix that. We will fix that. We have to fix that. We have no other alternative, because we have someone offering himself or herself to us on a silver platter saying the rest of my career could be yours, and I think that’s the driver in that situation going forward as to why they’re accepting and going ahead with it.

Robert Berenson: And just to make a couple of other points, in contrast to the ’90s when it mostly acquisition of primary care practices in a world where hospital executives thought that it would be managed care and capitation and they needed to have, you know, a population base and market share to count on -- that failed for reasons we’ve heard about a little bit. They didn’t know how to -- I mean, they turned to sort of an entrepreneurial doc into an employee and paid a lot of money up front.

Most of the activity in the genesis of the current sort of move towards employment is on the specialist side, and just to identify some of those issues, in some communities malpractice burden for individual physicians is such that the hospital, with its own off-shore -- in some cases self-funded off-shore alternative -- is a good deal for the doc. You’ve heard about lifestyle and the younger docs who don’t want to be entrepreneurial and in their own practice.

The ER coverage problem, and UMTALA where increasingly trauma docs don’t want to take call without being paid and can get as much as $1500 or $2000 a night for being on call. When you do the math, it might make sense to employ that neurosurgeon and have a solid trauma team that you have more control over than hoping they’ll respond to a phone call.

And also -- it’s also consistent with the service line strategy of having some prominent physicians who have helped sell the service line in the market, and you want a commitment from those physicians, so in some cases it’s best to employ. So, there’s a number of pressures, and it’s mostly on the specialty side.

Geoffrey Harris: On the for-profit side, whether it’s actual employment or facilitating, you know, relocations or loans or medical office buildings -- I mean, the -- I’d say the for-profit companies have very specific goals in terms of "recruiting" physicians, and they talk about them very freely, and they talk about them to the investment community and they’ll have graphs and charts saying, you know, we’ve recruited so many physicians this year and the specific goal is to drive volume.

Paul Ginsburg: Good. I want to briefly go into health information technology and really just ask the panelists again if you could dig down and what’s -- strategically what are hospitals trying to accomplish when the invest in (off mike)?

Kevin Ponton: This has been one of my talking points that somewhat irks me in that I think we’ve seen information technology pushed in the healthcare area, particularly among hospitals, as the key to better care, and basically the panacea for everything that hurts healthcare. And to a certain extent, there are certain pieces of technology development that would do that. But, in fact, let’s face it. I think what hospitals have been doing throughout the country -- basically their strategy has been expense reduction. You get -- you reduce your expenses by getting more efficient at what you do. Well, you’ve got to remember that the healthcare sector is probably the least information technologized sector of any business sector in the United States compared to almost anything. I’m not sure if any studies have been done recently along that line, but they are very, very, very, very lowly information technologized -- too little for what they should be doing -- and so it’s been very -- taking forever for hospitals to get themselves at the right level of technology. And so up until now it’s been I think purely an expense reduction exercise except among the very best and brightest hospital systems out there who are looking to the real panacea, which is something like an electronic medical record. But the vast majority of them are looking at basically getting their basic systems under control so that they better manage and reduce their costs and expenses.

Adam Feinstein: Yeah, I would just add that, you know, hospitals are really behind the curve here as is the healthcare system in a general -- you know, you hear jokes about hospitals that just started using the internet and Windows, right? So, you know, certainly, you know, this is an area where there needs to be more investment, but what the difficulty is -- it’s very hard to measure the return. So, I think whereas if you buy a new MRI or CT or something or a robot, you can measure their return on capital, but with, you know, pure information technology, it’s very difficult to know what the returns are. So, clearly, hospitals are looking to be more efficient, and anything that can help in that or anything that can help in terms of managing the hospital in terms of the receivables and such, but, clearly, you know, this is something where, you know, my feeling is that, you know, ten years from now I don’t think we’re going to make a lot of progress, but, clearly, you know, it seems like, in terms of the strategy here I guess, you know, all the hospitals struggle with, you know, what is the right strategy, whereas all of them have made investments recently, but maybe a lot of that was because of the access to capital we were talking about before. So, if there is less access to capital, I’d question whether we see a slowdown in healthcare IT spending, even though, you know, a lot of people would argue we need to make greater investment.

Geoffrey Harris: The only comment I would make just from following some of the publicly traded IT providers that the companies that are focused on systemwide solutions that try to integrate some of the medical information with the financial information I’d say are generally doing pretty well, at least currently. I mean, they are growing. They’re also getting, interestingly enough, government business from overseas. So, Britain is spending a lot of money now on enterprisewide systems to the benefit of some of the U.S. companies. Cerner comes to mind - is one that right now is -- business is pretty strong.

Paul Ginsburg: Good. The next question is about retail and workplace clinics, you know, that certainly both of these have grown, and really the question is do you think they have a potential to become a significant part of the delivery system, or is this just going to be a niche?

Geoffrey Harris: Just to comment on that, I mean, it’s interesting how if you’ve been following a sector for a long time how, you know great ideas happen and then they don’t work and then ten years go by and then all of a sudden the same idea comes back as a -- maybe I’m just sounding a little too cynical, but, I mean, they were -- the retail clinic idea, I remember, was tried pretty aggressively, if I remember correctly, sort of in the late ’80s, maybe even early ’90s, and didn’t get a lot of traction and then sort of disappeared for a long time and now all of a sudden there’s a lot of venture activity in this arena. So, just making a personal comment, I’m somewhat skeptical. It’s not a fact, just that I’m somewhat skeptical. I haven’t seen this come and go before.

Paul Ginsburg: Yeah. I would add to Geoff’s comments there. It seems like, you know, the theory sounds good but in reality, which is many times the case in healthcare, it doesn’t work. And in one of the major health plans we had a conversation about this and they were saying how, you know, people tend to double-dip here in that if you have a kid you bring your kid to the, you know, retail clinic, and if the doctor says there’s even something remotely wrong with the child, then you’re going to go to see another doctor. So -- or you’ll go to the hospital anyway. So, you know, I think it works in, you know, in smaller areas but, clearly, it’s just one of these things where once again what sounds good in theory doesn’t always work in practice.

Adam Feinstein: I think one of the differences -- really the only one that I can find between what we tried in the ’80s and what’s going on now is those were doc-in-the- boxes. Now they’re -- well, actually not staffed by physicians I think. There’s a sort of limited set of conditions, and it’s largely nurse practitioners or PAs. It will be interesting to see if the hopes for the medical home, which I share the hopes, will -- one of the goals is to increase primary care after-hours access, whether by phone or even physically have longer office hours, be compensated for it. Whether that would actually happen and whether that would take some of the pressure off the need to have the retail clinics -- but we’ll see.

Paul Ginsburg: Good, and actually again if you could write questions and start passing them to the center aisle, because we’ll switch the question load in a few minutes.

Really have two more areas to cover, and one is not a hospital issue, so that might limit-- people could speak to it to Geoff. But you see all my pharmaceutical questions?

Geoffrey Harris: Yeah.

Paul Ginsburg: And it motivates you to -- actually, a lot of them seemed to have motivated you. Well, why don’t you hold forth?

Geoffrey Harris: Okay. Just a number of different comments on pharmaceuticals. First of all, volume and pricing and the impact from Medicare Part D. I think Medicate Part D definitely led to a bump in volumes that is now being anniversary, but there definitely was some Medicare Part D impact. I think more importantly, there was a clear impact on pricing, particularly for drugs that are heavily -- were heavily used by -- previously reimbursed by Medicaid, and thathappens to be a lot of the psychiatric drugs, for example. So, if you were Lilly selling Zyprexa, although they may not talk much about it, I think they were very happy about Part D, because it allowed them to increase prices very dramatically, so I’d say Part D has been a modest positive on volumes and probably a fairly big positive on pricing.

Paul Ginsburg: I see. So, the pricing thing really came in the dual eligible area.

Geoffrey Harris: Right.

Paul Ginsburg: Now, what about the Medicare beneficiaries without coverage that were buying a retail? Weren’t there -- aren’t they paying lower prices through the PBM negotiations?

Geoffrey Harris: They may be paying lower prices, but I think the net effect is that the pharmaceutical companies, at least from what I can tell, enjoyed overall better pricing.

Paul Ginsburg: Yeah. What’s the perspective on -- you know, what’s coming in the pipeline as far as new, important drugs? Is it -- can it continue as it’s been in recent years of not much other than biologicals?

Geoffrey Harris: I think that’s the case. I’d say the two big, you know, disease areas that remain are, I’d say, three, that people - at least in the investment community -- get excited about are Alzheimer’s -- I mean, clearly an unmet medical need. One need only look at the price action recently of Elan and Wyeth, which have a promising drug for Alzheimer’s, and enormous premiums are being paid for these stocks many years ahead of any potential drug. So, Alzheimer’s; obesity, another big area; and cancer, of course, still remains a major unmet, medical need. So, those are the big areas Having said that, I think that the -- at least from the investment community perspective - the companies and sectors that are going to have the best shot at meeting those medical needs I’d say are still in the biotech area and that people don’t see the big pharmaceutical companies as making a lot of advances here, which is why these pharmaceutical companies still trade at very low valuations and have not performed particularly well.

Paul Ginsburg: Good, thank you. And one final question, really, that any of you can answer is, you know, as we’ve seen -- we know that private equity venture capital has become more important in healthcare, and, you know, what insights -- you know, what types of businesses are they funding, and do any of them have implications for things that might become much more important in healthcare?

Geoffrey Harris: Just to follow onto my previous comments, certainly the biotech is still a very big area, and I’d say medical technology -- those are two still very large areas for (off mike) funding. One of the questions one might have is with the stock market performing poorly today and the ability to take a venture-funded company public being diminished, because the stock market’s unattractive. The question is how are these venture capital firms going to make money on these investments, which they obviously have to do in order to keep making investments, and the biggest source of exit strategy for them to make a return on their investments, frankly, has been to sell to larger companies, like the big pharma companies that are desperate for pipeline or medtech companies that are very large and are desperate for new products, so you might fund a biotech company. It might take a drug in phaseone or phase two, and rather then take it public, you might sell it to Pfizer that’s in need of new products.

Adam Feinstein: Yeah, and just to follow up here. I mean, this has been a very hot theme for the last few years and our private equity has made a big investment in particularly the hospital space, and with the HADL being, you know, the hardest LBO ever at that point in time. So, clearly, you know, the question is, you know, why -- it’s one thing that the venture capitals are finding new in innovative companies; it’s another thing just to recycle things as they’ve been around a long time (off mike) recycling, and I think just due to the nature of the hospital visits, the cash flow is very strong. You can lever these companies up, and the track record’s been very good, so I think these will be very successful investments for the private equity firms that made these investments, and if I could go back in time I would have -- I’d gone back and (off mike) for the slug of a capital in as many of these companies as are possible, so -- but, you know, clearly, you know, I guess we’ve had eight companies that I covered that have gone private in the last two years.

So, just to give you a sense in terms of magnitude in terms of the deal activity.

Geoffrey Harris: One comment on the hospital LBOs. I think that one of the bets that the private equity investors may be making is a bet on universal coverage, or more universal coverage, in that, you know, if you took HDA private at 7-1/2 times operating cash flow or (off mike) and if in a couple of years we have more universal coverage then, it would eliminate a lot of their bad debt, that (off mike) suddenly grows very dramatically and they can earn a very big return on their investment.

Paul Ginsburg: Thank you. I’ve got a bunch of questions that look good, invite people to come up to the microphone, and the first question would be what -- I think these means market trends will address the enormous price variations among various hospitals for the same services? And this person would -- in a sense is asking the same question about the enormous variations in outcomes for treating the same conditions. So, you know, really the thing is that are there, say, market developments on the horizon that might address this, and the person actually says well, what should happen?

Adam Feinstein: You know, this whole idea of transparency of pricing is, you know, one of the other wholly grails of healthcare, and there’s been a lot of talk about it, and, you know, there’s been a big push for it. It’s just very difficult to really implement in that, you know, it’s hard to really standardize pricing. It’s not like, you know, other products in the marketplace where people can readily compare the price or even some of these systems where they are posting prices. It’s very difficult, I think, and it’s difficult to get everyone in line, so I don’t see that changing any time soon. I think there will continue to be a lot of academic work done to propose new ideas there, but I think it’s going to be a long time until we have any sort of standardized pricing in the hospital sector.

Robert Berenson: Yeah, I was going to say something similar, which is if you combine the hospitals having sort of the upper hand in negotiating leverage with health plans and transparency of prices, you do at least, at least theoretically, in some reports the lower-priced hospitals say I can get more now that I’ve seen what my competitors are getting and go back into negotiations to get increases rather than what’s supposed to happen in competitive markets. So, I mean, I don’t think we’re putting the transparency genie back into the bottle, but I don’t think it’s going to be a silver bullet by any means and may, in the short term, actually raise costs rather than reduce them.

Geoffrey Harris: Just to --

Paul Ginsburg: Go ahead.

Geoffrey Harris: Just a comment on that is that, I mean, there’s such a complicated dynamic between pricing and quality and healthcare, you know, generally, if you’re just going back to the Lasik surgery. You know, the price differential between going to one of the for-profit entities and going to a private physician might be, you know, five- or six-fold, and when you ask the -- offline, you ask the physician well, how come you can charge five- or six-fold more than the one down the street, and they sort of come up with nebulous things: Well, it’s my reputation, blah-blah- blah. I say well, you’re outcome’s any better, and it’s not. There’s no real answer there, so just because something’s more expensive or -- I should say less expensive in healthcare doesn’t mean the volumes will go up or that the quality is worse. It’s sort of a -- it’s a very loose correlation there.

Paul Ginsburg: An interesting comment on the three answers that you got is that all of you went to price transparency. Nobody went to -- well, like narrower networks or some other mechanism to, you know, more strongly encourage patients to use the apparently more efficient hospital, which I think speaks volumes of that, the attitudes of employers and insurers and how they want to operate in this market.

Yes, sir.

SPEAKER: The concept of a medical home is very attractive in terms of quality and innovation of services. But how does that concept relate to the reality of what physicians might be inclined to do and hospitals might have an interest or inclination to do -- to support?

Robert Berenson: Was that medical home?

SPEAKER: Medical home. The concept of having a more efficient, effective coordinator of care through primary care.

Robert Berenson: Yeah, no, I think - and I’ll associate myself with the optimism that Christine presented in the first panel, but I think it’s going to be much more difficult. I hope the medical home doesn’t sort of become the new silver bullet that solves -- you know, that we look to to solve the problem. I actually noted that I haven’t -- unless I’ve missed it, I haven’t heard the term "pay for performance" mentioned any time today, and I would bet that probably had its peak two to three years ago. It was probably one of the major topics at this meeting. I don’t want "medical home" to fall into that same sort of this was another idea that didn’t happen. I think the data -- the international data that mostly is produced by Barbara Starfield out of Hopkins on having a stronger primary care base and a health system that’s associated with higher quality and lower costs. You can make a compelling case for the medical home. I don’t think yet there’s an agreement on what the emphasis should be, and one of my concerns -- and I’m going to be -- we have an article coming out of Health Affairs in September -- is that we don’t have so many expectations on the medical home that the primary care docs just sort of throw their hands up and say what, are you kidding? I can’t do all of this. And so, actually, to be more specific, I think we need to be working through models of virtual teams, and part of the medical home concept -- a lot of it comes out of Ed Wagner’s work on chronic care management with multi-disciplinary teams. If we -- right now we have about 50 percent of the doctors still in solo or "onesies" and "twosy" practices basically, and I have trouble imaging that those practices will adopt many of the elements of the medical home, so I think we need to be working on virtual teams and community-based -- I mean, I agree basically a disease management nurse in some call center four states is not going to have a relationship with the patient. But there are some models, like in North Carolina Medicaid and others, where you’ve got the support to the physician’s office in the community, and I think we need to be working on that. I think this is a five- to ten-year process to get the medical home right, to figure out what the different elements are of a patient- centered-oriented health system, but the bottom line is that we now spend about 7 to percent of the health dollar on primary care, and the sort of bet is that if we actually paid those docs more for measured outcomes and performance that they could have a significant impact on that other 93 percent of spending, and that is where I think absolutely there needs to be some leadership shown. This needs to be -- we need to move on this, and that’s the hope. So, that was a long-winded answer to basically saying I think the primary care doctor is interested but don’t make them do things they’re not prepared or interested in doing.

Paul Ginsburg: I’ve got a question here. What do you see as the future of comparative effectiveness assessments so that the health system can pay for what works and stops paying for procedures that are unnecessary or harmful? How far off is some real impact?

Kevin Ponton: I think until that - like a number of other very laudable and potentially extremely effective improvements to the healthcare sector in the United States -- is a function of the data that’s freely available and portable out there, and to my view what I’ve seen so far is that data isn’t there either for quality or for pricing, so that any kind of transparency in those areas which require that data simply don’t have the infrastructure to support them. They need the data in order to make those kinds of decisions, in order to allow anyone to make those kinds of decisions, be it the person in the medical home or the patients themselves, and without it that simply can’t be done. Once that is available, once we have tsunami of data made available that’s being recorded now and simply is not as bottled up among the hospitals and providers themselves, I think we’re talking academic exercises rather than really effective health system change.

Robert Berenson: I have a little bit different take on it, and I would refer to the -- there was a front-page story in the Times about two weeks ago on CT angiography, which is rapidly being adopted by cardiologists as a noninvasive way to do an angiogram, and there’s really no evidence of its effectiveness apparently. I haven’t personally reviewed all the literature, but there have been some literature reviews done, and CMS wanted to use that as an example of testing out or implementing their new model of improving it as part of -- with data collection, so as long as you agree to begin to quasi-clinical trial, we will pay it only on that basis, and essentially they got rolled politically by the Congress. They caved with that position. And in that case, I think it was a -- so, to me the issue around comparative effectiveness is will we create some kind of an institution (off mike) federal. Some people talk about a federal reserve kind of entity that essentially I think provides some political cover for making decisions. In many cases, the proponents or the manufacturer of a new technology, to get FDA approval and then to pass an evidence test for private payers and Medicare, need to fund the studies, and there are studies. The question is whether the payers are -- have the political will to actually say no in the absence of evidence that supports something.

Geoffrey Harris: I think that’s a particularly tricky issue when you look at the off-label prescription of drugs. I mean, you have a -- there was an article about a (off mike) recently that has data supporting its use in colorectal cancer, as an example, but is being used in brain -- every cancer now, even though they are actually no data to support use. But that’s part of the system -- is to allow physicians to make their own decision and use drugs off use. That may result in excess utilization of something that is not yielding any outcome. The flipside is that given how long the regulatory process is, the drug may actually be helping people, and if we waited until you had clear-cut data and FDA approval and every indication, a lot of people would die in the interim. I mean, that’s just a very difficult problem.

Paul Ginsburg: Good. Here’s a question, a straight, simple one. Would you comment on trends in e-prescribing? So, in a sense, is e-prescribing about to take off, and what implications will that have if it does?

Kevin Ponton: I was going to say, I think once physicians start using e-mail, we might have some --

(Laughter)

Kevin Ponton: Or if hospitals, for that matter, and there are a lot of hospitals out there who don’t even have web sites e-prescribing.

(Laughter)

Kevin Ponton: C’mon. It ain’t going to happen.

Robert Berenson: And we still are, as a country -- that’s only about 15 to 20 percent of docs have electronic health records and Scandinavian countries are well over 90 percent. And we’ve got a problem.

Kevin Ponton: If I could comment on the electronic medical records or electronic health records, to my point of view, those -- that has the potential to be a real -- I’ll say the word -- panacea for what is ailing the health sector in the United States -- and I’ll say it right now. But, the key factor has got to be that the thing is portable. The record has got to be portable. If it’s not portable, it goes nowhere. You’ve got hospitals all over the -- systems all over the United States who are each developing their own medical record, and when you’re done with it, you can’t go anywhere else with it. In Boston, you have some of the best systems in the world - Mass General developing its own medical record, and someone goes from there across the street with a file under their arm with their medical record in it and those guys who are developing that and touting it in conferences like this and saying how great it is -- freely admit that, and why? Because it doesn’t allow the hospital to maintain that patient s a client. It’s dangerous to do that. It’s against every bone in the body of a hospital system to allow a patient to go somewhere else with this record that they developed. So, until it’s portable, it’s going to be virtually useless. But if we had a portable medical record, I’ll stand on it right now. That is a panacea. That would make incredibly positive changes in the American healthcare system.

Paul Ginsburg: It sounds like that’s potentially transformative but running up against a very powerful competitive.

Kevin Ponton: Absolutely. Absolutely.

Paul Ginsburg: A situation to hold on to the data and to prevent that --

Kevin Ponton: I have suggested that in a conference where a CEO had a large system that just described how their system worked, how their EMR worked out greater ones, and I said can they take across the street to the assistant? This is in Rhode Island somewhere. Can they take it to Boston?

Of course not. What do you think, I’m crazy? I didn’t do that.

Paul Ginsburg: Good. One final question, then we’ll close. It’s addressed to Adam. Within the hospital analyst community, how much debate is there over what has been driving the increase in bad debt expense? Is it - I think it says pricing versus the increase in individual, uninsured via -- or decreases in collections in.

Adam Feinstein: Thank you for the question. Yeah, no this is a great question, because I think there’s a big debate out there in terms of what’s really driving bad debt. But I think, you know, the conclusion is it’s a combination of everything. So, sure, more uninsured patients. The numbers show you there’s more uninsured, so as hospitals are dealing with that, but at the same time, the hospitals raised our charges very aggressively over the years, so as a result, it tends to exacerbate the bad debt expense -- is the only (off mike) charged at that higher rate. Now, most hospitals have discount programs, but still the charges due tend to drive the bad debt expense higher, and then just the collection rates -- you know, hospitals weren’t ready for this whole crisis, but really (off mike) start in 2003. The good news there is the (off mike) actually started to get better, because they’ve been dealing with it now for the several years. So, I have heard, you know, the increment of some improvement there, but I think the hospital charges definitely, you know, led to the increase just as much as the unitary volumes did, so that’s why we try to look at different ratios as opposed to just looking at the pure bad debt expense as the accounting changes and everything that has taken place the last five years.

Paul Ginsburg: Thank you. I would like to close the conference now and first ask you again if you could fill out your evaluation form? You know, we’re researchers. We’ll get information from them if we get a high response rate.

Want to thank the Robert Wood Johnson Foundation for its support of this conference. Want to thank all those of the HSC staff who are at the desk in the back of the room that all worked to make this possible. And, finally, thank our panel for doing a marvelous job.

(Applause)

(Whereupon, at 12:01 p.m., the PROCEEDINGS were adjourned.)

* * * * *

Participant Biographies

Christine Arnold - Former Managing Director, Morgan Stanley

Christine Arnold is a former managing director at Morgan Stanley, where she covered the managed care industry. She joined the firm in 1999 as the senior managed care research analyst. Arnold spent 16 years in investment research and has specialized exclusively in managed care for the past 11 years. Before joining Morgan Stanley, she worked in research at Goldman Sachs; Furman Selz; Montgomery Securities; and in corporate finance at Burns Fry, a Canadian investment bank. Arnold earned her bachelor’s degree with a concentration in finance from Georgetown University.

Rober Berenson, M.D. - Senior Fellow, The Urban Institute

Robert Berenson, M.D., is a senior fellow at the Urban Institute and an expert on health care policy, particularly Medicare, with experience practicing medicine, serving in senior positions in two presidential administrations, and helping organize and manage a successful preferred provider organization. From 1998-2000, he was in charge of Medicare payment policy and managed care contracting at the Health Care Financing Administration (now the Centers for Medicare and Medicaid Services.) In the Carter administration, he served as an assistant director of the Domestic Policy Staff. He was also national program director of IMPACS-Improving Malpractice Prevention and Compensation Systems-a grant program funded by The Robert Wood Johnson Foundation, from 1994-1998. A board-certified internist who practiced for 12 years in a Washington, D.C., group practice, Berenson is a fellow of the American College of Physicians and a graduate of the Mount Sinai School of Medicine.

Matthew Borsch, C.F.A. - Vice President, Goldman Sachs

Matthew Borsch is a vice president and senior investment research analyst at Goldman Sachs, covering the managed care and health care provider sectors. Before joining Goldman Sachs in February 2001, Borsch was an executive in the managed care industry for six years with Physicians Health Services, a health insurance company, and Telesis Medical Management, a physician management company. Previously, he spent seven years as a management consultant with Accenture. Borsch is also an adjunct professor at Columbia University, where he has taught graduate-level courses on the managed care industry since 1997. Borsch is a chartered financial analyst. He received two master’s degrees from Columbia University in 1994, an M.B.A. and M.P.H., and a joint B.A./B.S. in economics and mathematical sciences from The Johns Hopkins University in 1986. Borsch was voted Next Generation Analyst by Institutional Investor magazines in the 2003, 2004 and 2005 All-America Equity Research polls.

Adam Feinstein, C.F.A. - Managing Director, Lehman Brothers

Adam Feinstein is a managing director in equity research at Lehman Brothers, where he covers, as well as coordinates, the firm’s health care facilities research team. Feinstein was ranked first in the 2006 Institutional Investor All America Research Survey in the health care facilities category for the second consecutive year. In addition, he was ranked first in the health care facilities category in the 2006 Greenwich Associates Research Survey. Prior to his current role, he was an equity research analyst at Salomon Smith Barney where he also focused on the health care services industry. Feinstein is a chartered financial analyst and is a member of the New York Society of Security Analysts and the CFA Institute. He earned his bachelor’s degree in business management from the University of Maryland at College Park. He was recently named to the Robert H. Smith Business School Dean’s Advisory Council. His Feinstein’s Facility Weekly Insights & Observations report is estimated to be the most widely read piece of research on the health care facilities sector.

Paul B. Ginsburg, Ph.D. - President, Center for Studying Health System Change

Paul Ginsburg, a nationally known economist and health policy expert, is president of HSC, a nonpartisan policy research organization in Washington, D.C., funded principally by The Robert Wood Johnson Foundation. Previously, Ginsburg was the founding executive director of the Physician Payment Review Commission (PPRC), created by Congress to provide nonpartisan advice about Medicare and Medicaid payment issues. Under his leadership, the PPRC developed the Medicare physician payment reform proposal that was enacted by Congress in 1989. A highly respected researcher, Ginsburg previously has worked for the RAND Corp. and the Congressional Budget Office. He earned his doctorate in economics from Harvard University.

Geoffrey Harris, M.A. - Portfolio Manager, The Cerimon Funds

Geoffrey E. Harris is a portfolio manager of The Cerimon Funds, a new healthcare hedge fund started in 2007. Prior to his current position, Geoffrey was a healthcare analyst and portfolio manager at a multi-billion-dollar hedge fund based in Boston. Prior to his current position, he was a managing director in the research divisions of UBS Financial Services, Smith Barney and Tucker Anthony. Harris began his Wall Street career as a health care analyst at Loomis Sayles in 1986. He earned his master’s degree in management from the Sloan School of Management at M.I.T. and his undergraduate degree in economics from Oberlin College.

Robert Laszewski. - President, Health Policy and Strategy Associates, Inc.

Robert Laszewski is president of Health Policy and Strategy Associates, Inc. (HPSA), a policy and marketplace consulting firm. Before forming HPSA in 1992, Laszewski was executive vice president and chief operating officer, Group Markets, for the Liberty Mutual Insurance Group. For 10 years he also served as national adviser on health policy issues for Ernst & Young. He is North American chair of the Global Medical Forum and also chairs the forum’s work in China in partnership with the Chinese Health Ministry. He was a founding board member of the bipartisan Alliance for Health Reform, as well as a member of the Board of Overseers of the C. Everett Koop Foundation at Dartmouth and the Dartmouth Medical School. He has offered his perspective on health care reform in testimony before several committees of both the House and Senate of the U.S. Congress. Laszewski has participated extensively in the nation’s health care debate, especially on health insurance reform and the impact it will have on existing health insurance programs, the insurance industry, and the evolving role between payers and providers.

Kevin Ponton - Senior Managing Analyst, The Dreyfus Corp.

Kevin Ponton joined Dreyfus in 2005 with an extensive background in hospital capital finance, having worked for a bond insurer, health care investment banking firms and a hospital management consulting firm. He has been the capital finance columnist for Healthcare Financial Management magazine for the past several years and has taught graduate-level health care finance at New York University and at an Executive Program in Beijing. Ponton holds a master’s degree in health policy and management from Harvard and an undergraduate degree in philosophy from Louvain.

Joshua R. Raskin - Managing Directory and Senior Analyst, Lehman Brothers

Joshua Raskin is a senior vice president and senior analyst in the equity research department at Lehman Brothers covering the managed care industry. Prior to his current role at Lehman Brothers he was a research associate at Morgan Stanley Dean Witter and a senior associate in the financial services group at PricewaterhouseCoopers LLP. In the most recent Institutional Investor All-American Research Team Poll, Raskin placed second among more than 20 analysts in the managed care category. Alpha Magazine (the hedge fund-centric publication of Institutional Investor) has ranked Raskin in the top two since that publication’s origination. In the most recent Greenwich Associates poll for 2006, he placed second in the overall research franchise ranking for the Healthcare Services - Managed Care category. Raskin has been widely cited in the media, including The Wall Street Journal, The New York Times, Barrons, Forbes, Business Week, Modern Healthcare, CNBC and Bloomberg Television. He is a chartered financial analyst and is a member of the New York Society of Security Analysts. Raskin graduated with honors from Lehigh University with a bachelor’s degree in accounting.