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OCTOBER 2013 | Volume 60

October 2013 The Self-Insurer (ISSN 10913815) is published monthly by Self-Insurers’ Publishing Corp. (SIPC), Postmaster: Send address changes to The Self-Insurer P.O. Box 1237 Simpsonville, SC 29681

FEATURES

ARTICLES 14 From the Bench: Caught with Your Pants Down: Why the Attorney-Client Privilege Matters

Editorial Staff

22 The Case for a Disruptive

PUBLISHING DIRECTOR James A. Kinder

MANAGING EDITOR Erica Massey

SENIOR EDITOR Gretchen Grote

Healthcare Strategy? by John Morris

A Winning Global

48 DOL Teams Up with Vermont on the

DIRECTOR OF ADVERTISING Shane Byars

James A. Kinder, CEO/Chairman

Outsmart Everybody

Benefit Mandates: Health Plans and the Requirement to Apply for a “HPID”

DIRECTOR OF OPERATIONS Justin Miller

2013 Self-Insurers’ Publishing Corp. Officers

28 ART Gallery: We Need to

38 PPACA, HIPAA and Federal Health

CONTRIBUTING EDITOR Mike Ferguson

Editorial and Advertising Office P.O. 1237, Simpsonville, SC 29681 (888) 394-5688

Healthcare System by William Bennett

Latest ERISA Preemption Attack

Keeping Reimbursement Costs Down for Self-Funded Plans & Providers by Landon Gordon

Erica M. Massey, President

INDUSTRY LEADERSHIP 4 Chairman’s Message

Lynne Bolduc, Esq. Secretary

52 SIIA President’s Message

A Matter of Morals: How to Restore Responsibility, Accountability and Respect by Bruce Shutan

The Self-Insurer | October 2013 3

CHAIRMAN’S MESSAGE John T. Jones

Dear Fellow SIIA Members and all 2013 Conference Attendees

join SIIA President Boughner and the entire SIIA Board of Directors in welcoming you all to Chicago, and in thanking you for being here and supporting SIIA and the industry. We live in challenging times with all the headwinds on both the state and federal levels, but we stand committed to the challenge and relish setting the standard for leadership in promoting the interests of our members and those with whom they do business. It has been a whirlwind stint for me in serving on SIIA’s Board and ultimately as its Chair, an experience I so greatly enjoyed and for which I have many to thank. What a humbling and invigorating experience. I have met so many interesting and committed professionals, made so many new friends. I enjoyed doing what I could to help SIIA lead the industry in advocating for fair results for our members. There is never a dull moment with this group and I salute all the fine directors I have had the pleasure to serve with, and I further recognize the talent of SIIA’s management team. The issues our industries face are complex, but SIIA’s mission and purpose is not. But it takes a team, a joint commitment to knowing where the challenges lie and then addressing such challenges and objectives with creative and fair remedies. I applaud SIIA and its members for this commitment, it is impressive. I hope my small contribution has helped moved the mission forward. I look forward to seeing all of you in future years and again encourage you to “get involved and stay involved”. Thanks again and God Bless America and all of you. n

October 2013

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October 2013

A Winning

Global Healthcare Strategy? by John Morris

October 2013

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undamentally, a global healthcare strategy is a misnomer as only individual country strategies exist. The healthcare marketplace differs dramatically from country to country where U.S. based companies face a stark contrast to their domestic strategies. Simply put, the U.S. is an anomaly on multiple levels. Yet, there are intriguing models within several rapidly developing markets that warrant exploration. In this article we will examine both the striking differences and intriguing similarities of a global healthcare strategy. Because the U.S. is unquestionably the most unique healthcare marketplace in the world, any company looking to expand globally must address the three most obvious differences: cost, outcomes and the funding mechanism.

This disparity is far greater when comparing the U.S. to non OECD countries (developing nations). Any projection or strategy that presupposes anything similar to a U.S. level of healthcare expenditure or any component thereof outside the U.S. must be rethought.

Cost Enormous debate has occurred around the rising cost of healthcare in the United States. There are entire industry segments specifically devoted to squeezing out inefficiencies from the market and controlling cost. However, when one compares the U.S. spend to that of other OECD (Organization for Economic Co-operation & Development which includes the more developed nations of the world), it becomes clear that that the U.S. is an absolute outlier. When comparing per capita expenditure within each of the OECD countries, the U.S. is not only at the top of the list, it has 2.5 times more expense than the average and 9 times more than the lowest country.1 The difference is similarly evident in health expenditures as a share of GDP. The U.S. spends nearly 18% of its GDP on healthcare while the nearest OECD country is at approximately 12% with the average near 9% and the lowest at 6%.2

Perhaps the old adage “you get what you pay for” is coming to mind at this point. It has been said that the U.S. has the best healthcare in the world and that people from all over the world travel to the U.S. for care. While some of the world’s most renowned healthcare delivery systems are in the U.S. and some of the greatest advances in medicine over the decades have undeniably come from the U.S., the aggregate performance of the system in comparison to other countries is surprising. Unfortunately, when compared specifically to the other OECD countries the U.S. fares quite poorly.

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October 2013

Outcomes The U.S. actually has the highest first-day infant mortality of any country in the industrialized world. In fact the U.S. rate is 50% more than all other industrialized countries.3 The National Research Council and Institute of Medicine recently released a report which compared the U.S. to 16 other wealthy nations. The reports showed that the U.S. rate of 32.7 deaths per 100,000 live births is double that of Sweden and Japan while falling behind 68 other countries in terms of first-day mortality. In general countries similar to the U.S. expect rates between 15 – 25 deaths per 100,000 births.4 On a gender basis, U.S. men have the lowest life expectancy compared to 16 other wealthy nations and women fall below all but one other country in the group. Beyond duration of life, the U.S. population actually

experiences poorer health at all stages of life than the citizens in the comparison countries.

70% whereas in the U.S. the number is closer to 45%.5

These statistics provide strong evidence that any data used to project disease states, treatment requirements or any other strategy based upon the U.S. population must be carefully reviewed before attempting to apply this information to any other country.

Counter Arguments

Funding Mechanism The last major difference to understand is that the funding mechanism for the U.S. system is also dramatically different than almost all other OECD countries. The most significant difference is the public versus private sector contribution. The public sector is the main source of healthcare funding in all other OECD countries except Mexico. In most OECD countries the level of public funding is greater than

We need to acknowledge that there are some issues with the outcomes data. First, it is extremely difficult to do cross country comparisons for healthcare statistics. There are different cultural practices, different reporting processes and different environments. Second, life expectancy is a cumulative statistic that takes into account a myriad of causal factors and lumps them all into one. For example, environmental and individual health behaviors like the higher incidence of alcohol related auto accidents, the higher occurrence of fatal violence and the rampant obesity crisis all contribute to shortening the life expectancy in the U.S. Third the much higher incidence of teen pregnancy in the

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U.S. contributes substantially to the higher infant mortality rate. And finally, the diversity of the U.S. population driven by immigration generates disparate inputs that skew outcomes.6 Another point for discussion is that the U.S. spends more on R&D for medical research, device development and pharma. While theoretically the value of the R&D will ultimately be commercialized and “baked into” the price, there are some intriguing arguments that the full cost of R&D is not being effectively passed on to the consumer today. One reason is the “free rider” concept. The theory applies to public goods where an individual is able to benefit from the overall good without having to bear the full cost of that good or service. In geopolitics, the concept refers to countries that benefit from a security umbrella without absorbing the full cost to provide the safety or security. When this concept is applied to intellectual property rights one can argue that if IP is not protected, the full cost of producing the good or service cannot be reflected in the price. Thus if a device manufacturer spends millions on R&D to only have another organization copy the device then the copier is acting as a free rider. How does this relate to our discussion? Simply put if the U.S. spends more money on R&D and tech but others copy the IP then a disproportional recuperation of the cost is sought within the U.S. market thus making the U.S. appear to have a disproportionally high cost of healthcare. In other words the U.S. subsidizes the still developing World market.

Differences within OECD countries While there are extreme differences between the U.S. and other OECD counties in expenditure, outcomes and funding, there are also differences

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between each individual country. Within the EU and EFTA (European Free Trade Association) certain minimum levels of benefit are required but the mechanisms to achieve the goals are variable. These range from a universal payer with secondary markets in the U.K. to the requirement to purchase insurance in Switzerland. Therefore, opportunities for U.S. based companies are different especially for organizations serving the self-insured community.

Developing Nations Opportunities outside the highly developed countries are very intriguing. Two trends in particular are expanding in the U.S. and have significant parallels in large developing economies related to the blurring of traditional boundaries. Once upon a time, employers purchased insurance. Insurance companies sold fully insured plans and healthcare providers supplied the services. This can be visualized as the three points of a triangle.

Employer/Insurance/ Provider Over time, points associated with the employer and the insurance company began to blur, in large part due to self-insuring. What resulted was a bipolar, adversarial system that pitted the remaining poles of employer/ insurance against the providers.

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An interesting development over the past few years has been the 8/30/2013 10:50:37 AM

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October 2013

resurgence of the onsite health clinic. Ultimately this creates a convergence in the middle of the triangle where the distinctions between insurance/ employer/provider all merge into one single point.

Provider/Payer Another exciting convergence which exists in many developing markets and has the potential to be radically accelerated in the U.S. is the merger of the insurer and provider. Within the U.S. as a result of market pressures the most pronounced being reform, this merger is being driven by both stakeholders. Hospitals are moving up the value chain into the insurance arena by offering their own health insurance plans. What started with plans for their own employees or ACOs is rapidly morphing into community based plans. In fact, several Florida based hospitals recently announced their plans. Conversely, the insurance companies are vertically integrating back into their own supply chains by opening their own clinics and medical centers. This concept of medical centers offering some sort of insurance or at minimum pre-payment package has gained a lot of traction within India. However, the much more interesting market to watch is Brazil.

Interestingly, this model is quite common in developing economies. In markets where significant institutional voids existed, large companies created their own infrastructure. When the electrical grid was unreliable or nonexistent they installed their own generators. When the quality of the water supply was unpredictable they created their own water purification systems. The onsite health clinic is a logical extension of the response to market needs. Certainly in today’s world of the rapid transfer of best practices it’s reasonable to expect that knowledge learned in a market like India would be transferable to the U.S. and vice versa.

Brazil, which has the largest population of any country in South America, is experiencing explosive growth within its middle class and has begun to focus on managed care to meet new demand. The Brazilian market is expected to grow at a pace twice as fast as the U.S. One of its most intriguing features is the practice of insurance companies also owning or managing hospitals and physician practices. Recently, UnitedHealth paid $4.9 billion to purchase a controlling interest in Amil Participacoes SA, Brazil’s largest insurance company and hospital operator. Amil has 5 million clients and owns 22 hospitals and 50 clinics. In comparing the model to the U.S., CRT Capital Group analyst Sheryl Skolnick said “It’s not something UnitedHealth has been willing to do here, but it gives them an opportunity to

The Indian market place is also particularly intriguing because of their rapidly expanding middle class, their delivery system similarities to the U.S., their world renowned centers of excellence (many of which have expanded in response to medical tourism), their higher private sector and personal contribution for healthcare services and most recently, their willingness to work with TPA’s. The following example from India (www. businesstoday.intoday.in) should look quite familiar to anyone with a career in self-insurance in the United States.7 10

October 2013

The Self-Insurer

see how it works.”8 Ultimately, UnitedHealth believes it to be a brilliant strategic move. While Aetna is tied up in its acquisition of Coventry, and WellPoint is equally distracted with its move on AmeriGroup, UnitedHealth is both diversifying outside the U.S. and simultaneously learning a model that may be poised to dramatically impact domestic healthcare delivery. For any company planning its global strategy, we unquestionably live in exciting times. As discussed, the U.S. is an absolute outlier on the global healthcare field and is in the midst of enormous disruptive change due to reform. Thus, any strategy rooted in U.S. experience and practice must be deeply questioned. In the end, a global healthcare strategy is nonexistent and even country strategies may not stand the test of market evolution. Rather, the transference of knowledge learned in developing markets and the hybrid of best practices within particular segments will be the ultimate differentiator of successful companies on the world stage. n John Morris brings over twenty years of experience in the healthcare marketplace to his role as President, Network Management of Premier Healthcare Exchange, Inc, a company that provides advanced cost management solutions for health plans. His past experience in all facets of the healthcare industry combined with his global educational experience acquired from the Thunderbird School of Global Management, gives him a unique understanding of the challenges facing healthcare today, and how PHX is instrumental in helping its clients meet those challenges. Resources 1

“U.S. Health Care System from an International Perspective”, OECD Health Data 2012, June 2012: p3.

“U.S. Health Care System from an International Perspective”, OECD Health Data 2012, June 2012: p4.

Savethechildren.net, www.savethechildren.net/sites/default/files/libraries/Briefing%20firstday%20mortality%20rates%20 in%20industrial%20countries%20final.pdf 3

“U.S. Health in International Perspective: Shorter Lives, Poorer Health”, National Research Council and Institute of Medicine, 2013.

“How Does Canada Compare?” OCED Health Data 2013, www.oecd.org/els/health-systems/Briefing-Note-CANADA-2013.pdf

H.E. Frech, Stephen T and Parente, John Hoff, “US health care: A reality check on cross-country comparisons” July 2012. www.aei.org/outlook/health/global-health/us-health-care-a-reality-check-on-cross-country-comparisons/ 6

Mukerji, Chandralekha, “Negotiated Settlement”, March 2011. www.businesstoday.intoday.in/story/cashless-claims-publicsector-insurers-plan-negotiations-for-preferred-hospital-networks/1/13413.html 7

Humer, Caroline, “ UnitedHealth to buy most of Brazil’s Amil for 4.9 billion”, Oct 2012. www.reuters.com/ article/2012/10/08/us-unitedhealth-takeover-amil-idUSBRE8970E120121008 8

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October 2013

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October 2013

Bench From the

by Thomas A. Croft, Esq.

Caught with Your Pants Down: Why the Attorney-Client Privilege Matters

he “advice giving” marketplace in the self-insured world is populated with all sorts of folks with all sorts of expertise – outside auditors, consultants of various stripes, cost containment experts, subrogation experts, regulatory compliance experts, etc. – and yes, lawyers. This is a good thing, as there are resources available for TPAs, Brokers, MGUs and stop loss carriers and their reinsurers to get the expert advice they need in navigating the shoals that threaten safe passage in the complex, often-changing selfinsured environment. Candor is important, if not essential, in dealing with such advisers. Without full information from the

October 2013

The Self-Insurer

client about the situation giving rise to the consultation, the expert consultant cannot be expected to provide counsel that is as meaningful or complete as he or she otherwise might be able to offer. In short, the advice can only be as good as the background information provided by the entity seeking it. Such advisers need the benefit of their client’s initial analysis of the problem – their “first take” on the subject matter at issue--whether that be a claims matter under a Plan, a claims matter under a stop loss policy, a question involving the terms of a PPO contract, a subrogation situation, an “R&C” opinion, or something else. Advisers also need to be in a position to

communicate their advice back to their clients in confidence. Despite the need for candor and confidentiality, the vast majority of communications between the players in the self-funded arena and their various advisers are not confidential, in the sense that they are fully discoverable (if relevant) in the event of litigation between the entity seeking the advice and a third-party. Simply labeling the communications as “confidential” does not protect them from discovery unless some recognized legal privilege protects them. So – all that necessary candor flowing in both directions between most advisers and most clients can ultimately be exposed to scrutiny by

the very party to which the client least wants them exposed: their potential adversary. This is the “caught with your pants down” scenario described in the title. There is one exception: communications between an attorney and his or her client in which legal advice is sought or given in the context of a true attorney-client relationship. (Note: some states may provide for an accountant-client privilege of sorts as well). I will (shamelessly) borrow from an excellent article about the attorneyclient privilege by the Atlanta-based law firm of Smith, Gambrell & Russell, LLP at www.sgrlaw.com/resources/trust_ the_leaders/leaders_issues/ttl5/916/, entitled “What the Attorney-Client Privilege Really Means” (Fall 2003): “The attorney-client privilege is the oldest privilege recognized by Anglo-American jurisprudence. In fact, the principles of the testimonial privilege may be traced all the way back to the Roman Republic, and its use was firmly established in English law as early as the reign of Elizabeth I in the 16th century. Grounded in the concept of honor, the privilege worked to bar any testimony by the attorney against the client. As the privilege has evolved, countless policy justifications have played a role in its development. At its most basic, the privilege ensures ‘that one who seeks advice or aid from a lawyer should be completely free of any fear that his secrets will be uncovered.’ Thus, the underlying principle of the privilege is to provide for ‘sound legal advice [and] advocacy.’ With the security of the privilege, the client may speak frankly and openly to legal counsel, disclosing all relevant information to the attorney

and creating a ‘zone of privacy.’ In other words, shielded by the privilege, the client may be more willing to communicate to counsel things that might otherwise be suppressed. In theory, such candor and honesty will assist the attorney in providing more accurate, well-reasoned professional advice, and the client can be secure in the knowledge that his statements to his lawyer will not be taken as an adverse admission or used against his interest. Indeed, armed with full knowledge, counselors at law are better equipped to ‘satisfy all of their professional responsibilities, uphold their duties of good faith and loyalty to the client, and [contribute] to the efficient administration of justice.’ For all of its policy considerations and justifications, the attorney-client privilege has a very real practical consequence: the attorney may neither be compelled to nor may he or she voluntarily disclose matters conveyed in confidence to him or her by the client for the purpose of seeking legal counsel. Likewise, the client may not be compelled to testify regarding matters communicated to the lawyer for the purpose of seeking legal counsel.” (footnotes omitted). A sine qua non for the existence of the attorney-client privilege is the existence of an attorney-client relationship. Without that, there is no privilege and no protection of confidentiality. This is usually a simple matter to determine: client hires lawyer to give legal advice. If no lawyer is involved, there is no privilege. But what about lawyers on staff of companies dispensing advice? The client hires the company, but someone with a law license gives legal advice to the client about the matter at hand. Does the privilege exist in those situations? In my opinion, the answer is unclear. Lawyers are prohibited from sharing fees with non-lawyers in virtually every U.S. jurisdiction. This is why lawyers who practice in groups practice in law firms, where all the owners of the enterprise are attorneys. But the lawyer on staff of a corporation who dispenses legal advice works for his or her employer, and it is the employer who bills the client for services rendered. Regardless of whether the lawyer is acting appropriately by providing legal advice to the businesses’ client, is there still a protectable attorney-client privilege in existence? My suggestion to the client is to ask, and confirm in writing (email is fine) that : 1) we have an attorney-client relationship; and 2) the attorney-client privilege applies to our communications. The express and explicit confirmation from the lawyer that an attorney-client relationship exists is some (but not dispositive) assurance that the attorneyclient privilege applies. It will also require that the lawyer involved first determine whether a conflict of interest exists under the ethical rules governing lawyers in his or her jurisdiction, and decline representation if one does. This protects the client from the lawyer simultaneously giving advice about the same matter to entities with interests adverse to the client. If advice from outsiders is necessary for an attorney to give legal advice to a client about a given situation (or to assist the attorney in the prosecution or defense of an active litigation or arbitration), it is best practice to have the attorney retain the outside consultant and communicate with him or her directly about matters connected with the case. Communications (or at least the documents reflecting them) are protected by a privilege called the work product doctrine in most jurisdictions, and they also may be protected under various rules

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October 2013

of procedure that prohibit the discovery of the identity of experts who have not been designated as persons who will testify as such at trial. It should be noted that an attorney-client relationship does not exist unless the attorney is giving legal advice to the client. Just what constitutes “legal advice” is the subject of many, many reported cases, and they reflect disparate and conflicting results. But suffice it so say that pure “business advice” does not qualify, nor does work done by a lawyer in a pure “claims adjusting” role prior to a decision on a claim where no real legal analysis is required or involved. As to the latter, I would argue that most anytime a lawyer is consulted about a coverage issue – be it under a Plan or under a stop loss contract – legal advice is necessarily and inextricably involved, and that such services are the practice of law, so that the privilege applies. Like any other privilege, the attorney-client privilege can be lost by waiver. Most commonly, this occurs when otherwise protected communications are shared with third persons outside the attorney-client relationship. A client should always consult with counsel before forwarding email or correspondence to any third party. Buckle up. n

Known for his extensive writing on medical stop loss insurance issues, both in The Self-Insurer and on his comprehensive website, www.stoplosslaw. com, Tom has been practicing law for 34 years. Currently he practices through his own firm, CROFT LAW LLC, in Atlanta, GA. He regularly advises and represents stop loss carriers, MGUs, and occasionally TPAs, brokers, and self-insured groups, in connection with matters relating to stop loss insurance and the disputes that may arise among these entities regarding it. He currently serves on SIIA’s Healthcare Committee. He has been honored as a Georgia “Super-Lawyer” for the past six years running, and is listed as “Tier 1” in insurance by Best Lawyers. He is an honors graduate of Duke University and Duke University School of Law, where he formerly served as Senior Lecturer and Associate Dean.

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Keeping Reimbursement COSTS DOWN for Self-Funded

& Providers

October 2013

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Plans

by Landon Gordon

elf-insured employers continue to face the pressures of mounting healthcare costs, lingering economic uncertainties and increasingly complex reimbursement rules. Although these self-funded plans are exempt from several aspects of the Patient Protection and Affordable Care Act (PPACA), most of the provisions of healthcare reform will still apply. When these challenges are all accounted for, in-house-funded health plans are realizing they must do everything in their power to keep their administrative expenses to a minimum.

Many employers are still clinging to traditional billing practices utilizing paper checks, however, which, compared to electronic funds transfer (EFT), introduce unnecessary expenses in the form of stock, printing, postage and personnel resources required to process manual payments. In fact, the cost per transaction when utilizing paper checks averages $7.15.1 These manual reimbursements also expose payers to check fraud and abuse. Self-funded employers who embrace new technology have many opportunities to minimize expenses through their healthcare reimbursement processes. However, despite recent advancements in technology, EFT still isn’t widely favored among self-insured plans that still see value in the paper check process.

Healthcare Reform Brings Opportunity Building on groundwork laid by other healthcare regulations such as the Health Insurance Portability and Accountability Act (HIPAA), provisions for electronic transactions were written into the healthcare reform law. The mandate states that by December 31, 2013, all payer organizations must show the ability to facilitate claims reimbursement transactions via automated clearing house (ACH), and beginning January 1, 2014, if a provider requests their claim reimbursements via ACH, health plans must comply. While ACH is doing away with paper checks, thus lowering processing costs for both payers and providers, it may not be the best fit for all parties involved. For one, enrollment processes for providers are relatively burdensome, and the process often leads to diminishing returns for providers that receive very few reimbursements from some payers with whom they are enrolled. Fortunately, self-insured employers have other electronic payment options. Among the most revolutionary are virtual payments that enable plans to efficiently and transparently settle claims with provider organizations using existing credit card networks.

Virtual Payments Jumpstart EFT Adoption Payers that offer a virtual payment solution to their provider network have the ability to push the market away from paper check while optimizing the adoption of electronic claims reimbursement. Common in other industries, virtual credit card transactions are a convenient way for employers to leverage a trusted technology infrastructure. In most cases, an employer who received a bill from a healthcare organization or physician practice will send the provider a one-timeuse payment card number that they will use to process the payment transaction via their point-of-service (POS) terminal. Payment is then electronically routed to their existing bank account per their merchant acquirer agreement. Virtual payments create administrative efficiencies by eliminating manual activities and expenses, including clearing costs associated with check reconciliation

and processing. Virtual payments also incorporate fraud prevention mechanisms common to traditional credit cards, making them much safer than traditional checks. In the event the card is used fraudulently, most card issuers offer a range of dispute resolution processes from managing transaction issues with the provider to taking on the full financial burden of the disputed funds to eliminate payer concerns while the problem is being solved. It’s essentially an insurance policy that indemnifies all parties against fraud, abuse and misuse. With manual processes, reimbursement accuracy has long been an issue in healthcare. When a health plan overpays a provider due to a claim calculation error for a particular patient’s visit, for example, there are very complex processes for recovering the funds. In many cases they will reconcile the problem by short-paying future claims to the provider, often causing provider balance issues since overpayments are not contained with the original overpaid patient account. With no electronic method for the provider to return the money that was paid in error, additional patient balances are often unpaid to reconcile the difference for the payer. By automating their processes, however, health plans and self-funded employers can eliminate these problems. Many virtual payment solutions allow providers the ability to issue overpayments back to payers with the same remittance allowing providers and payers a fast and efficient refund process without worrying about providing access to bank accounts. Virtual payments also offer payers much greater insight into who the payee is and how they are using payments. With intelligence provided by the virtual payment transaction,

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October 2013

Cost Item

to promote their online web portal in real time to providers that are currently posting claims, for example. And unlike ACH transactions, virtual payments do not require providers to supply additional financial information that could be compromised.

Range

Bank related check clearing costs

$0.25 - $1.25

Check handling work-effort

$0.50 - $1.50

Reconciliation to separation of payment from remittance

$0.50 - $1.50

Health system sub-accounting

$0.00 - $0.75

Check Cost Elimination

$1.25 - $11.75

Virtual Card Cost ($250 Payment)

<$7.50>

Net <Cost>/ Opportunity for Provider Mismatch

<$6.25> - $4.25

Convenience

Value Creation

for example, employers have access to comprehensive analytics including provider payment utilization and other metrics. Virtual payment networks create a much more rich and transparent communications platform for health plans to interact with their provider networks. Additionally, since virtual payments work in a real-time processing environment, employers can observe provider billing and posting activities more quickly than they can with check or ACH reimbursements. With immediate transaction details, payers can modify provider behaviors – perhaps correcting a claims inaccuracy before it becomes a perpetual problem. They could also leverage the information

But employers should ensure that their chosen virtual payment solution complies with federal regulations governing the manner in which funds must be handled. The Employee Retirement Income Security Act of 1974 (ERISA), for example, is a federal law designed to protect the investment of employees participating in employerfunded plans. Further, the healthcare reform mandate currently states that if a provider requests their claim reimbursements via ACH, payers must have the ability to comply. And while employers can offer a virtual payment solution and sell providers on the many benefits it possesses, ACH is the only EFT method that satisfies the mandate.

RISK MANAGEMENT SOLUTIONS REQUIRE COORDINATED PRECISION

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Educating Providers About Virtual Payments

quickly, allowing them to reap the benefits of improved cash flow.

processing times and enhance staff

Existing in a proven and highly precise environment, virtual payments add transparency to healthcare transactions that few other technologies can achieve. Yet with all the advantages that virtual payments offer, self-insured health plans must fully understand the benefits in order to maximize provider adoption.

Self-funded employers must remember that not all virtual payment solutions are created equal. The most effective solutions, backed by the size and stability of the card issuer, are those proven to reconcile back to traditional billing processes, take on the burden of fraud and dispute management, simplify the handling of overpayments and provide robust analytics for payers to better understand how healthcare payments are used.

provider networks. n

Namely, they must promote to providers that virtual payments offer a convenient, cost-effective means to reduce their reimbursement costs by eliminating physical checks. Healthcare organizations will also benefit from increased accuracy and a reduction in incorrect or unwarranted payments, including those due to fraud and abuse. By digitizing the reimbursement process, employers can assure their providers that they will receive payments more

efficiency for both employers and their

Landon Gordon is vice president of Comdata Health. Resources 1

Visa comments to HHS on Administrative Simplification

Data based on research conducted by Aberdeen Group

PPACAâ&#x20AC;&#x2122;s electronic transaction provisions create an excellent opportunity for both payers and providers to revolutionize the reimbursement process, and adoption of electronic payments in healthcare can be further optimized with virtual payments. This unique solution can reduce costs, speed payment

The Self-Insurer

October 2013

The Case for a Disruptive Healthcare System: Changing the Delivery, Financing, Accessibility and Outcomes for an Employer and Employee Population by William Bennett Health care is a terminal illness for America’s governments and business. We are in “BIG” trouble.

of paying the bills. This is especially harmful to lower paid individuals.

he process of care delivery remains a time-consuming, very convoluted, overly expensive and most of the time deeply dissatisfying one. We have all heard the adage “If you keep doing what you have always done you will get what you have always gotten.” Nothing could

be truer in healthcare. We continue to be victims of “learned helplessness” – we have relied too much on individuals and companies to tell us what to do about rising healthcare costs for years without getting involved as employers and asking the hard but logical questions. We accept recommendations from advisors who are proficient in one or two areas but not in others that are just as significant in terms of our overall ability to manage the total corporate healthcare dollar. For example, we have allowed people tell us how to shift health costs but not how to manage them. All deductibles, copays, contributions and out-of pocket costs have done is to say “WHO” will pay the dollars and not how do we manage the dollars. In the end the dollars expended are the same with different responsibilities in terms

October 2013

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Cost shifting was not a completely invalid approach at one time. It forced employees and dependents to recognize the expense of healthcare. But given that it has happened year after year for a couple of decades there is a point at which it simply self-destructs. Engaging a traditional medical plan administrator or carrier will only take us so far since there is a limited amount they can do. Unless they offer an integrated wellness package (there are many with widely varying success) that makes sense, their actions are all after the fact. Let’s look at an individual like an

expensive automobile. Maintenance is the number one thing we need to be concerned with. Some buy used cars and there are things that need to be done to bring them up to standards and then maintain them afterwards. Some buy a new car and can start off with good maintenance habits. Both are looking to have a car that services them well with the least cost over the long run. For those that ignore good maintenance habits the car will have performance problems and cost much more. Healthcare is no different and has the same results. If we look at the top 3% of our population we will see that they consistently incur 56% of the health expenditures. 17% of the population will incur upwards of 80% of your claim dollar expenses. Some of these are unavoidable but overall they come from chronic individuals who are not compliant with doctors’ orders, prescription regimen and logical healthy lifestyles. Some are complete surprises that come from asymptomatic individuals who did not recognize they had a problem at all – diabetes, hypertension, hyperlipidemia, etc. The Gallup-Healthways survey of workers reveals that workers believe their work environment plays an important part in their overall wellbeing. Among the nearly 46,000 fulltime workers surveyed to date: • Nearly two-thirds are obese or overweight (25 percent obese, 40 percent overweight) • Two-thirds report one or more chronic diseases or recurring conditions • More than 20 percent report they are not able to perform their usual activities on one or more days last month due to illness. These workers reported being out sick an average of six days in the last 30

• Workers with one to three diseases and/or conditions report they cannot carry out their usual activities on 13.5 days each year. The impact of a negative work environment is an additional 6.6 days (48% higher) annually. Workers with four or more disease conditions report they cannot carry out their usual activities on 52.7 days each year. For these workers, the presence of a negative work environment increases that total to 68.9 days (a 31% increase). These findings are based on more than 94,000 interviews conducted from Jan. 2-Sept. 10, 2012, with American adults who work 30 hours or more per week as part of the Gallup-Healthways Well-Being Index. On the other side of the fence from the patient, we continue to deal with a 100 year old business model that was designed at a time when medicine

was much more intuitive. The outdated model of medicine is to simply treat the disease. The new model is a focus on wellness and lifestyle changes that directly impact both mortality and quality of life. This new model is one that embraces working with patients to evaluate and support wellness and lifestyle management in a cost effective and efficient manner. This is a system that is less convoluted, less time consuming, less expensive and more satisfying for the participants along with superior outcomes. “There are estimates that as much as 50% of healthcare consumed seems to be driven by physician and hospital supply and not patient need or demand.”1 This means a lot of simple care in an expensive setting burdened with systems and processes that further escalate costs. The logic is that if we don’t change the way medicine is delivered and paid for, we will be in the eye of the storm from now on.

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As we can see from taking time to analyze the entire system and everyone it embraces, the whole structure is modular with rare, if any, communication between each of the players – carriers, hospitals, labs, therapy, pharmacies, employees and employers. How would our own companies operate in that manner? Frankly providers need to be thinking about integrated fixed-fee models that can be more flexible and able to deliver quality outcomes at a fair price to patients rather than “fee for service”. Fee for service sends the wrong message to providers. Those physicians who are under contracts that reward productivity rather than outcomes are just one severe example of this issue. Reformers and employers who focus solely on how to pay rising costs are failing to address the real root problem of “why care is so costly to begin with?” The issue is not how do we afford healthcare but rather how do we make healthcare affordable?

Employers make money when their workforce is healthy and happy. If you watch what major employers are now doing in larger numbers each year is to integrate backward and providing comprehensive primary care to their employees. This trend is in place and already begun to accelerate. “Disruption of the traditional system is mandatory to force change.”2 We have no time to spend several years getting up the learning curve. If this is a critical problem for us as employers, and it clearly is, we need to either quickly develop the competence to solve the issue or find someone that has competencies in place. The industry in general, has never thought about or, to my knowledge, tried to combine the results of all programs in order to get a true picture of where the money goes how each area impacts the other or how to truly develop benefits and services to address the problem areas. If we are to tackle the huge challenges in healthcare today, we must take an increasingly data-driven approach to improving the delivery and business management of healthcare dollars. We must use data analytics to measure, manage and solve problems, including: • Improving the quality, safety and outcomes of care. • Driving the efficiency of care delivery. • Managing financial risks. Keep in mind the goal is to manage the corporate healthcare dollar and have a more risk averse and productive working population. What should an adequate integrated health plan include and what does the employee and employer “look like” afterwards as opposed to now? 1. There has be a mechanism in place where data is collected from all related health and service areas. This includes benefit plans, pharmaceutical, wellness

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October 2013

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programs, risk assessments and an onsite clinic. By doing this, care gaps can be readily identified (both age-based and diagnostic based) as well as monitoring compliance and progress. This data also allows the estimation of the next years cost based on the workforce and the history they have 2. Employees will have access to an affordable primary care clinic without deductibles or copays and be assured of superior outcomes. This will encourage individuals to get treatment early rather than waiting for a condition get out of hand that will possibly turn into a large health claim. Engagement is critical to optimize the offering. 3. As employers we will experience better productivity not only from more healthy employees but also from the fact that they can get treatment and return to the workspace in an average of 15 or 20 minutes. 4. Any treatment in the clinic does

not get turned in as a claim since the clinic is a fixed cost. Supplies, some drugs and most labs can be purchased at significant discounts through a national wholesale buying group. This causes claims to decrease and favorably impact the ratings for the health plan. 5. Health risk assessments with biometrics will allow the identification of employees with varying risks to be identified and guided through the onsite Health and Wellness program. In the end the employer has a healthier and more satisfied workforce, lower care costs, better productivity and comprehensive treatment that leads to superior outcomes. Without a similar program it will mean employers will continue to be in a reactive mode and remain on the same track for years to come. n

administration. In 1972, he started one of the earliest Third Party Health Administration firms for companies that were self-insured. The firm was also one of the earliest in developing software and processes for Section 125 programs to make health care more affordable. For over a decade, Bill has worked to develop a disruptive and totally integrated process for corporate health care. The method includes a focused disease state management platform through proven protocols and leading edge technology, driven by a fixedfee on-site primary care clinic. Resources Brownlee, S., Over Treated: Why Too Much Medicine Is Making Us Sicker and Poorer. 2007

Clayton Christenson, The Innovator’s Prescription, McGraw Hill

William Bennett, Chairman and Founder, WORKsiteRx. Since 1964, Bill has been involved in the field of health care

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October 2013

ART GALLERY by Dick Goff

We Need to Outsmart Everybody

s the brethren gather in Chicago at SIIA’s annual conference this month they will study “Outsmarting Reform” to equip their companies to succeed despite – and in some aspects even because of – the federal Affordable Care Act (ACA). What we need next will be courses on “Outsmarting Regulation” at the state level. Taken individually, regulators may generally be described as talented, energetic and often astute people with enough background in insurance to equip them to make the rules that we in the private sector will follow. Or at least that’s the way it’s supposed to work. The problems arise when the state minders get together in groups such as those sponsored by the National Association of Insurance Commissioners (NAIC) or at conferences put on by the various states to study captives and other aspects of alternative risk transfer. There, they tend to engage in one-upsmanship in their regsfests titled “Can you top this?” That’s the only way I can describe a recent discussion during the Vermont captive conference. Heads were nodding (I assume in agreement, not drowsiness) when the

October 2013

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bright idea was surfaced that captives and risk retention groups should be subjected to the NAIC’s Own Risk and Solvency Assessment (ORSA) regulation process that will embrace commercial insurance companies beginning in 2015.

auspices of their domiciliary states. It’s just a prudent component of companies’ mind-and-management practice. Captives’ self-analysis culminates in annual actuarial review statements that are already part of the states’ regulatory financial oversight.

NAIC members like ORSA because they invented it and promulgated it to the states via their members. Now they would like the same process to cover captives and RRGs following the argument that it would provide a standardized captive company assessment tool.

By adding another layer of regulatory busywork with ORSA, NAIC members would be demonstrating that either (1) they are not confident of their abilities to individually regulate captives in their home states, or (2) they don’t trust their peers in other states to do the job right.

One panelist explained that ORSA requires companies to assess their own risks in a four-step process that identifies major risks, establishes a process to measure the effects of risks, manages and mitigates the major risks and documents the results. But hold everything! Captives and RRGs are already doing this under the

Put most people out in a resort location for business conferencing and you’ll find a balanced measure of recreation and socializing. But insurance regulators appear to find their fun in group forensic examination and creation of better handcuffs for ART structures. I worry about them.

ART Outperforms Commercial ART should be the least of insurance regulators’ concerns according to the report issued recently by A.M. Best, the organization that may be closest to pure objectivity in assessing our industry. In 2012, U.S. captive insurance companies, on average, saw their lossadjustment expense ratios drop 5.7% from 2011. A.M. Best noted that the five-year combined ratio for captives of 92.3 compares extremely favorably with the commercial composite of 103.3. The captives’ operating ratio of the same five-year period is tighter at 76.0 versus 88.5 for the commercial casualty composite. A.M. Best’s news release commented, “It is well known that captives’ investment portfolios tend to be significantly more conservative… than typical investment portfolios for commercial casualty companies.” The 200 captive companies analyzed by A.M. Best were most heavily engaged in coverage for medical malpractice, general and auto liability, property, workers’ compensation, inland marine and other lines in a broad range of $2 million to $3.5 billion in surplus. Note to state domicile captive regulators: if it ain’t broke, please stop trying to fix it. As always, I welcome all feedback and opinions. Please feel free to comment to me personally via e-mail or send it in article form to our editor at ggrote@sipconline.net. n Dick Goff is managing member of The Taft Companies LLC, a captive insurance management firm and Bermuda broker at dick@taftcos.com.

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October 2013

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October 2013

A Matter of

MORALS

How to restore responsibility, accountability and respect

by Bruce Shutan

October 2013

The Self-Insurer

hen critics of health care delivery in the U.S. preach from their respective bully pulpits, any choirs within earshot of this message aren’t just nodding in agreement over how fixing the system is good for business. They’re also shouting (or in this case, singing) from the mountaintop about the importance of establishing a moral imperative to restore responsibility, accountability and respect to multiple stakeholders, who aside from self-insured plan sponsors, also include consumers, providers, vendors and government.

Insurance Institute of America’s former chief counsel who’s now Executive Director of the Healthcare Performance Management Institute in Washington, D.C.

consumers are empowered to make their own decisions, they make very good and cost-conscious ones that satisfy themselves,” he adds.

Employers clearly have stepped up responsibility in this area as evidenced by industry research showing more than 75% of them now offering wellness programs, according to Pantos. “That wasn’t something employers used to do,” he says, noting the need to provide tools to help reduce the prevalence of chronic health conditions, which account for 80% of all doctor, hospital and prescription drug expenses.

Focusing on value

That means making serious attempts to curtail wasteful spending, honor contracts, and most of all, place patient needs above all objectives. Another linchpin of this grand vision is the achievement of “true” mental health parity, which could combat a host of unintended consequences from high presenteeism and low productivity to larger societal implications associated with the rash of horrific shooting sprees by deranged individuals in recent years.

Indeed, people would be hired to work, their claims would be paid and that was the end of it. But now that employers are taking greater control of their health plan expenses, Pantos says they’re able to better detect benefits spending patterns and predict with a high degree of accuracy where trouble spots will arise – paving the way for better health outcomes and lower costs.

In post-health care environment, some thought leaders believe the task at hand will not be easy, nor will it take hold anytime soon without a massive effort among all involved parties to replace perverse practices with meaningful change. One such promising solution could be wholesale adoption of value-based purchasing, turning decades of cynicism and discouragement into hope and faith. But that could be wishful thinking if state-run insurance exchanges offered in 2014 erode employer-provided health benefits.

Unhealthy choices A major problem today is that most individuals do not act responsibly at a time when healthy behavior is needed more than ever before, observes George Pantos, the Self-

An even bigger concern may be that the average consumer of health care services often gets lost in a maze of unnecessary complexity, frets Greg Scandlen, an independent health care analyst based in Hagerstown, Md., who founded Consumers for Health Care Choices. “Physicians, hospitals and pharmaceutical companies treat consumers like they are passive recipients of services – not fully actualized human beings,” he says. “Even in the language used, physicians call them ‘patients,’ health plans call them ‘enrollees’ or ‘members,’ and drug companies even call them ‘subjects’ when it comes to clinical trials.” He says health economics research also de-humanizes patients as statistics defined by age, gender, race and health status – completely ignoring that each individual has its own values, resources and preferences. “All of the evidence I have seen suggests that when

If the health care system wasn’t so fixated on cost, then it’s quite possible that better outcomes could be unleashed, which, in turn, would lower cost. Richard D. Quinn, III, a health care blogger who worked as a corporate benefits executive for 46 years at Public Service Enterprise Group in Newark, N.J., is a fan of value-based purchasing. However, he’s doubtful the concept can move the needle on outcomes and cost unless it’s implemented on a macro basis. “If there are 10 large self-insured employers in a state or geographic area, they have to be doing the same thing,” he says. “They all have to be able to change the fundamental outlook of the health care system and the providers.” But Quinn fears that employers probably are headed in the other direction and will be tempted to abandon health care coverage, altogether, between the establishment of public health insurance exchanges and IRS definition of affordable care under health care reform. “I don’t think anything significant is going to happen until we start seeing the transition for more and more people ending up in the exchanges under one uniform system,” he surmises. What about several private exchanges now being set up? He dismisses them as “a money making scheme for consultants,” which, in fact, move away from self-insured coverage by transferring risk and cost accountability to insurers. Still, a recent white paper by Aon Hewitt, which offers its own corporate exchange, points out that “the more exchange participants, the greater the economies of scale that increase carriers’ ability to

The Self-Insurer

October 2013

offer competitive prices. In this insurance marketplace, as in every consumer market, the element of competition will ultimately reduce prices.” One bright spot that Scandlen sees on the horizon involves challenges to the notion that employers are somehow responsible for health care, which he strongly believes is a hindrance to the employee-employer relationship. He envisions a future in which employers continue to earmark whatever dollars they can afford each year toward group health insurance and let employees shop for the best possible care – with proper guidance in place. “There seems to be a lot of activity in that area combining fund contributions and private exchanges with a variety of coverages, and making money available for the employee to make their choices within that system,” he says. Scandlen also cites the cash-and-counseling concept as a shining example of consumer empowerment on the lowest rung of society’s ladder. The effort is aimed at people on Medicaid who are primarily elderly and disabled, focusing on personalcare services rather than case management. “They actually give them a pool of money and let them hire their own personal care service providers,” he says. “It has been enormously successful, and this is not coming from a conservative Republican, right-wing kind of perspective. This is from the Robert Wood Johnson Foundation, which is considered a very liberal organization. It increases patient satisfaction and lowers costs and just makes for a happier system when the consumer is an active player in decision-making.”

October 2013

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Another concern about the state of the nation’s dysfunctional health care system is a dearth of education about employee health promotion and wellness. “There isn’t enough information being disseminated out there to persuade people to stop smoking or eat more nutritious foods and to exercise more in terms of how it relates to their job performance, or expenditure of funds,” Pantos says. But sometimes businesses can go to extremes in ways that discourage healthier behaviors. Some employers, for example, push wellness programs to an unhealthy extreme. Scandlen has heard of cases where companies not only refuse to hire smokers, but also “anyone with a smoker in their family” – a candidate for consideration on the list of solutions being worse than the problems they seek to address.

And that’s just one example. “I remember talking to a medical director of a large company some time ago who was concerned about employees appropriately using weed whackers on the weekend at their homes,” he continues. “It seems to me that kind of attitude is going far beyond what an employee-employer relationship should be. Because they are paying for health coverage, they feel like they have a right to oversee employees’ complete activity 24 hours a day. That is a plantation mentality, and I think an outrageous overreach.”

A close watch on mental health In order for the health care system to work, employees in both self-insured and fully insured plans

need to be content from a holistic standpoint – a goal that cannot be fully realized unless they have access to affordable and quality mental health services. Therein, lies a simmering problem that occasionally bubbles to the surface in dramatic news accounts of horrific shootings. About one-third of those responding to the American Psychological Association’s most recent annual Stress in America report reveal that they suffer from high stress, but never discuss stress-management strategies with their health care provider. “The treatment system has been unable or unwilling to collect data on the rate of recovery and make it public,” explains Peter C. Brown, executive director of the Institute for Behavioral Health care Improvement in Castleton, N.Y. “We do know from work of individual researchers that people recover. The real question is

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how fast are they recovering? Society as a whole has the feeling that behavioral health problems are permanent, but, in fact, they are not nearly as permanent as many people would believe.” Brown says there also are gray areas to address, starting with an inability “to effectively articulate the expectations people should have when they entered care,” which serves to decrease “both the business of support and the individual consumer’s willingness in a lot of cases to invest effectively in the care.” Quinn believes it is hard to justify a different way of paying for mental health treatment relative to physical ailments, but also realizes that costs could swirl out of control given that some mental health conditions can require indefinite treatment and may never be cured. He predicts stronger enforcement of the Mental Health Parity Act

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(MHPA) “and maybe even regulations enhancing that [legislation] with regard to gun legislation because we’ve all heard in the press that the problem is really mental health. I think we have to look at what is causing all of this, which seems to be escalating. Is it breakdown of the family? Is it this environment people are growing up with that creates these problems? I don’t know the answer, but it seems to me it is more than just focusing on the treatment. We ought to be focused on why do we have so much? Why do we need so much treatment? Despite efforts to improve mental health care under the Affordable Care Act and MHPA, their intersection could be in the form of a dead end. “There are some real problems apparently about getting parity in care if what you are doing is transforming the general care system into an accountable-care methodology or patients-setting, medical home methodology,” Brown says.

million Americans are covered through the private health care system, more than 60% of whom benefit from self-insurance. The self-insured model makes it easier to apply proper algorithms for more aggressive solutions when years of claims data are amassed for apples-to-apples analyses that do not encroach on an individual’s privacy, Pantos opines. He’s sanguine about the future, noting one-on-one health care coaching by a nurse practitioner or other health care professional serving as the newest dimension to wellness. Those efforts could involve anything from managing medication adherence to following up on doctor visits. Pantos believes this could go “a long way toward getting people to be more accountable for their health care once they have all the information and they’re educated.” What’s still largely missing, however, is the measurement component – particularly as it relates to gauging the impact of poor health, absenteeism and presenteeism on productivity, he notes. But be that as it may, “the fact that you have such a high level of participation in the private health care system by self-insured employers certainly indicates that the employer has taken on a greater responsibility by planning, controlling, establishing and maintaining their health plan than by just simply paying a premium and turning it over to the insurance company and having nothing more to do with it,” according to Pantos. n Bruce Shutan is a Los Angeles freelance writer who has closely covered the employee benefits industry for 25 years.

The system clearly requires a more comprehensive approach. “Depression and chronic heart failure will feed off of each other to the point that if we don’t deal with them at the same time, we’ll find it increasingly difficult to help that individual cope with accommodating either one of those problems, or certainly the combination,” Brown explains. While health care reform has sought to fix longstanding systemic problems that have eroded the state of responsibility, accountability and respect among key stakeholders, Pantos firmly believes the employment-based model is still the best hope for substantive change. “For a long time, people have criticized the fact that employees are beholden to an employer for their health care and that they don’t just basically get it from other sources like the government,” he explains. But he cites a recent Kaiser Family Foundation report estimating that 150

October 2013

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October 2013

PPACA, HIPAA and Federal Health Beneﬁt Mandates:

Practical

The Patent Protection and Affordable Care Act (PPACA), the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and other federal health benefit mandates (e.g., the Mental Health Parity Act, the Newborns and Mothers Health Protection Act, and the Women’s Health and Cancer Rights Act) dramatically impact the administration of self-insured health plans. This monthly column provides practical answers to administration questions and current guidance on PPACA, HIPAA and other federal benefit mandates.

Q&A

Health Plans and the Requirement to Apply for a “HPID”

or purposes of administrative simplification, HIPAA requires HHS to adopt standards for assigning unique health identifiers for each individual, employer, health plan, and health care provider. Providers and employer have used identifying numbers (NPI and EIN) for some time now.

Health plans will be required to obtain a unique health plan identifier (HPID) by November 5, 2014 for large health plans and one year later for small health plans. It is anticipated that health plans and providers will require TPAs to obtain identification numbers (OEID) as well. Section 1104(c)(1) of the Affordable Care Act (“ACA”) required HHS to promulgate a final rule to establish a unique identifier (“HPID”) for health plans.1

The HPID is a standardized ten-digit number assigned to health plans, which is designed to increase standardization and help covered entities verify information from other covered entities. On April 27, 2012, HHS issued a proposed rule about HPIDs.2 The final regulations, issued on September 5, 2012, modified the implementation dates originally set forth in the April rulemaking, but did not substantively modify them.3

October 2013

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Who Needs an HPID?

Obtaining an HPID

The regulations draw a distinction between Controlling Health Plans and Subhealth Plans, based on the level of control the entity has over its activities. Under these regulations, a Controlling Health Plan (“CHP”), including a selfinsured CHP, is required to obtain an HPID. A Subhealth Plan (“SHP”) is not required to obtain an HPID, but may do so, either at the request of a related CHP or of its own accord. A CHP can also obtain HPIDs on behalf of its SHPs.

A national enumeration system, known as the Health Plan and Other Entity Enumeration System (“HPOES”), assigns unique HPIDs through an online application process. HPOES became available within CMS’ HIOS system in late March 2013. Information about the data elements that are part of the application (such as company information, authorizing official information, and NAIC number) are available here.4 During the application process, entities must register the organization, provide certain identifying information, select an application type (CHP or SHP), and then complete and submit an application, which will then be reviewed. A PDF presentation of the application process is available via CMS.5

A CHP is defined as a health plan that 1) controls its own business activities, actions, or policies; or 2) is controlled by an entity that is not a health plan, and if it has one or more SHPs, exercises sufficient control over them to direct their business activities, actions, or policies. The regulations list the following considerations in determining whether an entity is a CHP: 1) Does the entity itself meet the definition of a health plan at 45 C.F.R. § 160.103? 2) Does either the entity itself or a nonhealth plan control the business activities, actions, or policies of the entity? If the answer to both questions is yes, the entity meets the definition of a CHP. A SHP, by contrast, is defined as a health plan whose business activities, actions, or policies are directed by a CHP. In determining whether an entity is a SHP, the following considerations are relevant: 1) Does the entity meet the definition of health plan at 45 C.F.R. § 160.103? 2) Does a CHP direct the business activities, actions, or policies of the health plan entity? If the answer to both questions is yes, the entity meets the definition of a SHP. Practice Pointer: A “health plan,” as defined in 45 C.F.R. § 160.103, includes, among other entities, a group health plan, health insurance issuer, or HMO.

Large health plans must obtain an HPID by November 5, 2014. Small health plans must do so by November 5, 2015.6 By the “full implementation date” of November 7, 2016, all health plans must use the HPID in their standard transactions.7 Practice Pointer: It will be important to secure an HPID well before the mandatory compliance dates, so that there is sufficient time to work out any administrative issues that may arise with multiple entities implementing the new system.

How will an HPID be used? A covered entity is required to use an HPID when it identifies a health plan in a standard transaction. If a covered entity uses business associates to conduct standard transactions on its behalf, the covered entity must require its business associates to use HPIDs to identify health plans in standard transactions. There are also several uses for which an entity is permitted, but not required, to use an HPID. CMS stated that the HPID can be used for “any other lawful purpose” (in addition to a standard transaction).8 The regulations list the following potential uses of an HPID, which CMS believes will increase efficiency: in internal files, to facilitate the processing of transactions; on an enrollee’s health insurance card; as a cross-reference in healthcare fraud and abuse files and other program integrity files; in patient medical records to help specify health care benefit packages; in EHRs to identify health plans; in federal and state health insurance exchanges; and for public health data reporting purposes. Practice Pointer. While none of these uses currently require an HPID, they are helpful in that they illustrate how CMS intends the HPID to be used. In addition, CMS may decide to mandate some of these uses of HPIDs in the future.

Other Entity Identifiers The HPID regulations also introduce the concept of an Other Entity Identifier (“OEID”) for non-health plan entities that may engage in standard transactions. The possible users of OEIDs include third-party administrators, transaction vendors, clearinghouses, and other payers. Non-health plan entities that need to be identified in standard transactions are permitted, but not required, to obtain an OEID. However, health plans may require their business associates to obtain OEIDs in contractual agreements. Entities are eligible if they 1) need to be identified in a transaction for which a standard has been adopted by HHS; 2)

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October 2013

are not eligible to obtain an HPID or a NPI; 3) are not an individual. Because the adoption of an OEID is voluntary, there is no required compliance date. Practice Pointer: For employers, the HIPAA standard unique identifier is the employer’s EIN. For providers, the NPI, or National Provider Identifier, is the standard unique identifier. n

Resources This requirement is described in Social Security Act § 1173(b). This rule was required to be based on input from the National Committee on Vital and Health Statistics (“NCVHS”) and be effective no later than October 1, 2012. 1

Department of Health and Human Services, Administrative Simplification: Adoption of a Standard for a Unique Health Plan Identifier; Addition to the National Provider Identifier Requirements; and a Change to the Compliance Date for ICD–10–CM and ICD–10–PCS Medical Data Code Sets, 77 Fed. Reg. 22950, April 17, 2012. 2

Attorneys John R. Hickman, Ashley Gillihan, Johann Lee, and Carolyn Smith provide the answers in this column. Mr. Hickman is partner in charge of the Health Benefits Practice with Alston & Bird, LLP, an Atlanta, New York, Los Angeles, Charlotte and Washington, D.C. law firm. Ashley Gillihan, Carolyn Smith and Johann Lee are members of the Health Benefits Practice. Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner’s situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation. Readers are encouraged to send questions by E-MAIL to Mr. Hickman at john.hickman@alston.com.

Department of Health and Human Services, Administrative Simplification: Adoption of a Standard for a Unique Health Plan Identifier; Addition to the National Provider Identifier Requirements; and a Change to the Compliance Date for the International Classification of Diseases, 10th Edition (ICD–10–CM and ICD–10–PCS) Medical Data Code Sets; Final Rule, 77 Fed. Reg. 54664, September 5, 2012. 3

CMS, Health Plan and Other Entity Enumeration System Data Elements, www.cms.gov/Regulations-and-Guidance/ HIPAA-Administrative-Simplification/Affordable-Care-Act/ Downloads/HPOESDataelements.pdf. 4

CMS, HPID and OEID System Overview, March 2013, available at www.cms.gov/Regulations-and-Guidance/ HIPAA-Administrative-Simplification/Affordable-Care-Act/ Downloads/HPOESTrainingSlidesMarchSlideDeck.pdf. 5

“Small health plan” is defined as a health plan with annual receipts of $5 million or less. 45 C.F.R. § 160.103. 6

45 C.F.R. § 162.504. This was corrected from mistake in the original regulations by 77 Fed. Reg. 60629, Oct. 4, 2012. 7

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UpcomingEVENTS

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Self-Insured Health Plan Executive Forum March 24-26, 2014 • Charleston, SC The Self-Insured Health Plan Executive Forum (formerly known as the TPA/MGU Excess Insurer Executive Forum) will be held March 24-26, 2014 in Charleston, SC. The educational focus for this event will be to address the interests of plan sponsors, in addition to third party administrators and stop-loss entities.

28th Annual Legislative/Regulatory Conference April 23-24, 2014 • Washington, DC SIIA’s Annual Legislative and Regulatory Conference is your opportunity to hear directly from the policy-makers who will shape the health policy agenda in 2014 and beyond. Experience the political process first hand by participating in SIIA’s popular “Walk on Capitol Hill.” Meet with your federal legislators in their Capitol Hill offices and let your voice be heard. SIIA staff will set up your appointments, provide you with “talking points” and lobbying materials in advance of your meetings.

Self-Insured Workers’ Comp Executive Forum May 20-21, 2014 • Miami, FL SIIA’s Annual Self-Insured Workers’ Compensation Executive Forum is the country’s premier association sponsored conference dedicated exclusively to self-insured Workers’ Compensation funds. In addition to a strong educational program focusing on such topics as excess insurance and risk management strategies, this event will offer tremendous networking opportunities that are specifically designed to help you strengthen your business relationships within the self-insured/alternative risk transfer industry.

International Conference June 9-11, 2014 • Miami, FL SIIA’s International Conference provides a unique opportunity for attendees to learn how companies are utilizing self-insurance/alternative risk transfer strategies on a global basis. The conference will also highlight self-insurance/ ART business opportunities in key international markets. Participation is expected from countries all over the world.

34th Annual National Educational Conference & Expo October 5-8, 2014 • Phoenix, AZ SIIA’s National Educational Conference & Expo is the world’s largest event dedicated exclusively to the self-insurance/alternative risk transfer industry. Registrants will enjoy a cutting-edge educational program combined with unique networking opportunities, and a world-class tradeshow of industry product and service providers guaranteed to provide exceptional value in four fastpaced, activity-packed days.

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any stories or opinions on the self-insurance and alternative risk transfer industry that you would like to share with your peers?

We would like to invite you to share your insight and submit an article to The Self-Insurer! SIIA’s official magazine is distributed in a digital and print format to reach over 10,000 readers around the world. The SelfInsurer has been delivering information to the selfinsurance/alternative risk transfer community since 1984 to self-funded employers, TPAs, MGUs, reinsurers, stop-loss carriers, PBMs and other service providers.

Articles or guideline inquiries can be submitted to Editor Gretchen Grote at ggrote@sipconline.net.

The Self-Insurer also has advertising opportunities available.

Please contact Shane Byars at sbyars@sipconline.net for advertising information.

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DOL Teams Up with Vermont on the Latest ERISA Preemption Attack Editor’s Note: The following story was recently published on the SelfInsurance World Blog, where SIIA Chief Operating Officer Mike Ferguson offers original reporting and commentary on legislative/regulatory issues affecting companies involved in the self-insurance/ alternative risk transfer marketplace. The blog can be accessed on-line at www.self-insuranceworld.blogspot.com

he practice of individual states enacting laws that arguably infringe on ERISA preemption is not new. In fact, some states have become increasingly creative in poking and prodding at the limits of this federal law, which has raised obvious concerns among those involved in the self-insurance marketplace. (See previous blog posts commenting on the Michigan health care claims tax.) A new twist worth reporting on is the fact that the Department of Labor has apparently decided to take a more hands-on (political) role in shaping the evolving legal landscape, positioning the agency as a powerful accomplice in the effort to make self-insurance a more challenging risk management strategy. This intent was demonstrated last month by the DOL’s decision to file an Amicus brief in the case of Liberty Mutual Insurance Company v. Susan L. Dorgan, in her Capacity as the Commissioner of the Vermont Department of Regulation. The case is currently pending in the United States Court of Appeals for the Second Circuit At issue is whether Vermont’s Health Care Database” statute is preempted by ERISA. Among other things, the statute requires health insurers, providers, facilities and government agencies to “file reports, data, schedules, statistics, or other information determined by the commissioner.” The term “health insurer” is defined

October 2013

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broadly to include any administrator of a self-insured group health plans, including third party administrators and pharmacy benefit managers. The purpose of these requirements is to enable the state to build a comprehensive database it believes is necessary in order to effectively carry out health care administration functions. Liberty Mutual, a self-insured employer, refused to provide the requested data. The company subsequently sued the state, arguing that the collection and reporting of the requested data created administrative burdens for the plans, therefore triggering ERISA preemption. Siding with the state, a federal trial court judge granted summary judgment, finding that the Vermont law did not affect ERISA plan administration and further concluding that it was appropriate for the state to regulate in this area. Admittedly, ERISA preemption law can be complicated and highly technical in many cases. In this regard, to be charitable, we suppose that a good faith argument could be made the requirements set forth in this stature do not, in fact, affect plan administration so criticism of the state should be put in proper context – a disagreement on legal and policy grounds.

health care marketplace when possible and where few people are watching. We commented recently that Tom Perez’s nomination as secretary of DOL portended a more political agency. Given that he was subsequently confirmed after this Amicus brief was filed, his fingerprints aren’t on this one but it can be reasonably concluded that under his watch the DOL will continue to back Vermont if the case is ultimately heard by the U.S. Supreme Court.

And so it goes. A huge federal bureaucracy quietly imposes the Administration’s political will in ways too nuanced to attract attention. But that’s where the real action is. n

The DOL’s participation is another matter. By putting its large thumb on the scale, an ambitious political agenda is exposed for those who care to notice. As the agency primarily responsible for administrating and enforcing ERISA, DOL has historically defended the law’s broad federal preemption provisions. But with its provocative interpretation that Vermont is essentially regulating the business of insurance (the key exception to ERISA preemption), DOL has clearly signaled it has changed course, presumably to support the Administration’s implicit objective of squeezing the private

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SIIA PRESIDENT’S MESSAGE Les Boughner

The foundation is governed by a Board of Directors comprised of well-known industry leaders including: Nigel Wallbank President New Horizon Insurance Solutions Heidi Svendsen Vice President, Clinical Programs Optum Healthcare Solutions Alex Giordano Vice President of Marketing Elite Underwriting Services

elcome to Chicago and SIIA’s 33rd Annual National Conference & Expo! We have an outstanding group of speakers and educational sessions planned for you this year. We are confident that you will enjoy the program, and as always the opportunity to network with other leaders in the alternative risk industry. This continues to be the premier event for the self-insurance industry. Every year it attracts a significant component of return attendees and new attendees from other countries and industry groups who have heard of the value from attending. Don’t leave without stopping by the exhibit hall where more than 150 companies are showcasing a wide variety of innovative products and services designed specifically for self-insured entities. This year the Self-Insurance Educational Foundation (SIEF) will be selling raffle tickets for a vacation prize package for two people that includes 10 days and 9 nights on the “Emerald Isle” Vacation Tour in Ireland. I would personally like to thank the SIEF Board of Directors for all of their hard work and dedication throughout the year. It’s important to note that SIEF’s funding comes from voluntary contributions and through participation in fund-raising events, such as the popular SIEF golf tournaments that are typically held in conjunction with the SIIA’s educational conferences and events.

Freda Bacon Administrator Alabama Self-Insured Workers’ Compensation Fund Dick Goff Managing Member The Taft Companies, LLC For more information about foundation, please call 800/851-7789 or e-mail Erica Massey at emassey@ siia.org Don’t miss the famous gala close at the world famed Chicago House of Blues on Wednesday night where we will be treated to a private concert by Grammynominated artist Better Than Ezra. Once again, enjoy your time at SIIA’s 33rd Annual National Conference & Expo. If there is anything we can do to make the conference more enjoyable for you, please do not hesitate to ask! n

All contributions to SIEF are full tax deductible, so by financial supporting the foundation you can also reduce your company’s tax liability – a true win-win situation.

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October 2013

SIIA would like to recognize our leadership and welcome new members

SIIA New Members Regular Members

Full SIIA Committee listings can be found at www.siia.org

Company Name/ Voting Representative

2013 Board of Directors

Committee Chairs

John Mengarelli, President, Alternative Risk Solutions, Novato, CA

CHAIRMAN OF THE BOARD* John T. Jones, Partner Moulton Bellingham PC Billings, MT

CHAIRMAN, ALTERNATIVE RISK TRANSFER COMMITTEE Andrew Cavenagh President Pareto Captive Services, LLC Conshohocken, PA

PRESIDENT* Les Boughner Executive VP & Managing Director Willis North American Captive + Consulting Practice Burlington, VT VICE PRESIDENT OPERATIONS* Donald K. Drelich, Chairman & CEO D.W. Van Dyke & Co. Wilton, CT VICE PRESIDENT FINANCE/CHIEF FINANCIAL OFFICER/CORPORATE SECRETARY* Steven J. Link Executive Vice President Midwest Employers Casualty Company Chesterfield, MO

Directors Ernie A. Clevenger, President CareHere, LLC Brentwood, TN Ronald K. Dewsnup President & General Manager Allegiance Benefit Plan Management, Inc. Missoula, MT Elizabeth D. Mariner Executive Vice President Re-Solutions, LLC Wellington, FL Jay Ritchie Senior Vice President HCC Life Insurance Company Kennesaw, GA

54 September October 2013 Self-Insurer 2013 | TheThe Self-Insurer

CHAIRMAN, GOVERNMENT RELATIONS COMMITTEE Horace Garfield Vice President Transamerica Employee Benefits Louisville, KY CHAIRWOMAN, HEALTH CARE COMMITTEE Elizabeth Midtlien Senior Vice President, Sales StarLine USA, LLC Minneapolis, MN

Michael Madden, Senior Vice President, Artex Risk Solutions, Inc., San Francisco, CA Leslie Padilla, Manager of Provider Relations, Atlantic Imaging Group, LLC, Whippany, NJ Dino Dibella, Director of Sales, Choice Rx Solutions, Lisle, IL Christopher Lewis, President, EPS, Oklahoma City, OK Carlton Conner, Principal, Excess Loss Insurance Services, Reno, NV Dan Narayan, Sales Manager, Exdion, New York, NY Deb Marceau, Senior Project Manager, Flagship Health Group, Excelsior, MN Faisal Khan, Director, Health Alliance Plan, Southfield, MI Janice Albert, PA, MRA, President, Healthcare Strategies, Inc., Columbia, MD Randy Parker, Founder, President & CEO, MDLIVE, Inc., Sunrise, FL Tony Kopki, Senior Sales Executive, PacificSource Administrators, Tigard, OR

CHAIRMAN, INTERNATIONAL COMMITTEE Greg Arms New York, NY

Gary D’Orsi, Executive Vice President, Business Development, ReliaCare Alliance, Brooklyn, NY

CHAIRMAN, WORKERS’ COMPENSATION COMMITTEE Duke Niedringhaus Vice President J.W. Terrill, Inc. St Louis, MO

Kevin Burns, Benefit Consultant, The DeHayes Group, Fort Wayne, IN

Chris Monroe, National Sales Director, RxResults, Little Rock, AR

Ricardo Augusto Lobão, CEO, UIB Benefcios Consultoria e Corretora de Seguros Ltda., São Paulo, Brazil

Contributing Members Peter Slot, Head of Accident & Health Reins. USA, Beazley Group, Chicago, IL

Employer Members Stephanie Waldrop, Principal, Employee Benefits International (EBI), Phoenix, AZ

Kevin Hayes, COO/CFO, Grace International Churches and Ministries, Inc., Houston, TX Mia Harris, Benefit Manager, The Board of Water & Sewer System, Mobile, AL

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