Name: Budd Fisher
Position: President and chief executive officer, Unitedhealthcare of New Eng-land
Background: Chief Executive Officer, Unitedhealthcare of Kentucky, 1995 to 1998
Education: Bachelor of Arts Degree in communications, Temple University, 1970
Age: 47
Family: Married, two children
Residence: East Greenwich
BUDD FISHER: ‘A couple years down the road… we’re really going to have a much better situation for the delivery of health care.’
Seifert Systems Invests in Energy Efficiency to Strengthen Operations
For manufacturers, energy is more than just another operating expense. It plays a critical role…
Learn More
PBN: You have been in Rhode Island since last January; how has your first year in Rhode Island been?
FISHER: On a personal basis it’s great. It’s a wonderful place to live. My family loves the area, as do I. I’ve lived in New England in the past, was born and raised in the Northeast, so it feels like home. From a business perspective it’s pretty challenging. It’s an exciting and dynamic market and a lot of things are happening. Some of the things that are happening in the market are things that have happened in other places earlier. New England has been (the) home of nonprofit HMOs; in most markets, we have at minimum a balance between for profits and nonprofits. In our view that provides a healthier mix. I think we’re seeing a changeover now, with the problems that Harvard and Tufts are having, that, I’m optimistic that we’re going to get to that kind of balance, at least regionally between for profits and nonprofits. And I think the future, a couple of years down the road, is that, after some of the turmoil is over, we’re really going to have a much better situation for the delivery of health care. Why is it better to have a mix of the two?
For profits and nonprofits bring decidedly different things to the table. One of the things that’s been missing in this region, with the exception of United, is the scrutiny that publicly traded companies bring. Some of the things that have happened to Harvard and Tufts, if they were for-profit companies, and they were publicly traded companies, would have never have been allowed to have happened. The accounting is a lot tighter. The scrutiny from analysts on Wall Street is continuous. And we have a fiduciary responsibility not only to regulators and to legislators but to hundreds of thousands of stockholders.
Some would say that nonprofits are accountable to patients first, while for profits are primarily accountable to shareholders.
I have never seen a difference. Quite simply put: If we don’t reduce the expenses that we take out of the system, then there is no profit. So, we have really slimmed the organization down, so that that focus is really honed on only serving the customer, the patient, and taking less out of the administrative cost than your typical nonprofit would. When you look at our administrative expenses versus a Tufts or a Harvard, or any of the Blue Cross organizations, you find that we compare extremely favorably. So, any moneys that are available for profits are moneys that we have earned by being economical and by utilizing superior systems.
What about the cost of health care?
The cost of care is the major issue. In any health plan, whether it’s for profit or nonprofit, 80 to 90 percent of every premium dollar goes to care, so it’s a pretty tight band throughout the industry. When we see premiums escalate, for example, whether it’s with a for profit or a nonprofit, it’s because the cost of medical care is rising fairly dramatically. The 10 or 15 percent involved in administrative cost really is a minor part of the equation.
United seems to have managed to keep the rate of health care cost increases from rising.
On a national basis that’s true. Regions vary. What we saw in the New England marketplace and in Rhode Island in particular is that managed care, as it did throughout the country, did a very effective job between the late ’80s and the mid ’90s in holding back the rate of escalation of health care cost. Sometimes we have a short memory: In the mid ’80s, industry was having problems because the percentage of the Gross Domestic Product that health care expenditures made up was moving up quite rapidly into about the 14 percent range.
Managed care hasn’t really diminished that but it’s held (it) in that 13 and 14 percent range over the years, and the increases were fairly moderate. What we’ve seen in this particular market, however, is different. And it really goes to some of the dynamics, the dominance of two hospital systems (Care New England and Lifespan) principally has caused a fairly rapid escalation in health care costs that no health plan, whether it was a for profit or nonprofit, could have ever planned for. Health care expenditures went up about 15 percent in ’97, and about 23 percent in 1998. There’s no way that any managed care or insurer could possibly plan for that level of increase year over year.
Basically, what we’ve planned for is something in excess of the medical CPI for the Northeast region – that would typically be on a cost component about 5 percent. So we see increases in the 15 to 23 percent range, as we have since ’97, that’s what really causes a lot of difficulty.
Historically in this industry, the rate of medical escalation always precedes by one year the rate of premium escalation. So, we’re always like the proverbial guy running down the street trying to catch the bus. It’s another reason why we’re optimistic about the Northeast: We just don’t think costs can continue to rise at the level they’ve been rising in the medical sector. Everything has a ceiling.
So the costs increases are bound to stop?
No one in the industry is saying that hospital costs and physician costs don’t go up year over year. Everything costs more, that’s totally accepted. And one of the things, and it’s been talked about quite a bit, is the effect that the Balanced Budget (Act) in ’97 had on all of this. It’s the No. 1 factor. Medicare and the fact that payments to hospitals and other providers have been radically reduced, payments to HMOs have been radically reduced, put pressure on other segments of the marketplace in a way that heretofore there were no pressures. The government had a problem with Medicare a few years back. The fee for service system, that was rampant with fraud and still is today, costs were spiraling out of control. So HCFA (Health Care Financing Administration, the federal agency that administers Medicare and Medicaid) dropped many of its requirements as an enticement for managed care plans coming in and helping them control costs. The tradeoff was that managed care plans never were paid what fee for service Medicare costs, because that’s how the government hoped to get its reduction. Now that they’ve enticed the plans in, and seniors found the plans fabulous, and the out of pocket amounts are very small compared to fee for service, now the payments are being reduced again, and that’s what’s causing pressure on the entire system. Hospitals don’t want to participate in Medicare risk programs or HMO Medicare programs; they don’t think the compensation is adequate, they think they can do better on fee for service, and they’re exiting the program, which is causing chaos in the system, and making it unfeasible for health plans to continue to expand their services.
That’s No. 1. But that has a ramification on the commercial segment, too. Because since Medicare reimbursement, both fee for service and HMO, is reduced by the government, (on) the commercial side there’s more pressure from the hospitals to increase rates to managed care organizations.
When you refer to the difference between what the government pays in fee for service Medicare and what it pays for HMO Medicare, I presume you are referring to what those in the managed care industry call the “Medicare fairness gap.”
Correct. Which has increased every single year because the additional reimbursement each year has been rather small. Up until this current year it averaged about 2 percent, which really doesn’t cover the cost of CPI increase, and the unit cost for the cost for medical technology advances. Eight or nine years ago, women didn’t have five and six visits a year to the doctor for osteoporosis. They didn’t have bone density tests (to detect osteoporosis). Now that exists, and women can have superior health in old age as a result of that, so it’s real positive. The problem is that those are additional cost in the system that doesn’t get compensated for. So 2 or 3 percent a year just doesn’t cut it.
There are people, however, who say the disparity in Medicare payments is justified because the fee for service population – which still accounts for about 85 percent of Medicare beneficiaries – is older and sicker, and because Medicare has been overpaying HMOs that rushed to sign up the healthiest of Medicare beneficiaries.
My reaction to that is, that may have been, and I’m not even sure that’s correct from day one, that may have been correct years ago when the program was just starting out. But at this point, there are numerous studies that indicate that there is no difference in the risk, and there are some studies that indicate that the risk is actually worse because of the access to benefits. Just as in commercial HMOs, it really varies by delivery system. If you run a large, broad access delivery system like United HealthCare, where almost every specialist participates, almost every hospital is in the network, what happens is, you tend to get a sicker than average mix than if you had a small group model, and the seniors would have to come 15 miles to see that particular practice, and they would be very limited on who their oncologist might be or who their cardiologist might be. When we look at our analysis nationwide, and certainly in New England, we don’t see any difference in the type of risk between fee for service and
HMOs. As a matter of fact, there might be a bias, because again, there’s a huge dichotomy between what the benefit levels are, but we actually get worse risk. There are contradictory studies. It’s an issue that you can find facts to support whatever position. I think the fairest way of approaching it would be (is), there probably is no demonstrable difference.
The other thing is, as these plans mature, our members stay with us. Since the day this plan has opened, we have plenty of members who have been with us from Day One and continue to be with us. So, as a risk, what they might have been 10 years ago is, like the rest of us, is not what they are today.
Congress approved a Balanced Budget Act fix last year, but many say it was not enough. What do you think Congress should do?
I’m pleased that they passed something. And I think our Rhode Island delegation was really behind that. It did not provide any help for the HMOs specifically; it provided help to the providers. We’re pleased that they got some help. It is really seen by, even our own delegation, as merely a very small stopgap method.
But what changes should Congress make?
I think there’s a couple of things. The methodology by which payment by county is established really needs an overhaul. There needs to be some equity. There is over a $200 difference between what we would get reimbursed in Providence and what we would get reimbursed in Boston. And that difference in the cost of medical services no longer exists. Providence the rate of medical cost escalation over the past couple of years has now gotten it on par, or actually higher than, Boston. But Medicare hasn’t kept pace with that. So Providence would be a good example of an area where, one of the things that would make it more attractive, and make it more feasible for us to continue the program, would be some shifting between the higher cost areas and the lower cost areas to balance that out a bit.
Congress tried to deal with that before because it was concerned that, because Medicare payments were higher in dense population areas, HMOs had incentive to operate in urban areas only. But you’re saying the difference in payments is still way out of whack?
In this particular area, and I can really only speak for New England, when we look at the difference in underlying cost now between Boston and Providence, that (cost) differential doesn’t exist.
How many members do you have in New England and in Rhode Island?
We have about 530,000; we’re a regional health plan from Connecticut to Maine. Of the 530,000, about 230,000 reside in Rhode Island, and they’re covered by our Medicare, Medicaid and commercial products. We are the state’s largest Rite Care contractor, as you may know, 47,000 Rite Care members. We have about 25,000 Medicare members in Rhode Island and about 38,000 total. And then the balance are employer groups and individuals.
Are you satisfied with that number, or are you trying to expand your membership?
We’ve had a program that I’ve been fairly public about. Over the last three or four months, there are situations in Rhode Island that tell us that we need to continue to be focused on our Rhode Island business, but also be more aggressive in our expansion into the surrounding states, Massachusetts, Connecticut, and New Hampshire in particular, those three states. And the reason for that is, we consider Rhode Island to be a fairly volatile market – we’re down to two substantial entities in health care. We are concerned about over-reaction from the legislature in terms of bills that will set Rhode Island apart from the rest of the country, and could be very negative to both employers and our own business. So our strategy is to diversify further into Connecticut and New Hampshire and Massachusetts. The analogy would be: No one holds just one stock in their portfolio. That’s the strategy. Are we satisfied? No, we’re never satisfied. We think that there’s tremendous potential in New England. United has invested in New England since 1991, and when it took over the Ocean State Plan, and this plan has been in existence since 1985. I think the Boston market continues to show promise that it will be more open in the future, perhaps by necessity, to for-profits than it has been in the past.
We do have two concerns, and that has been misconstrued a bit in some public statements. Financially we’re very strong. We expect to be at an operational break-even this year. Last year we lost $22 million, in 1997 we lost $7.4 million, and in 1996 our operating income was about $4 million. It’s interesting to us that no one was concerned about us when we lost $7.4 million, no one seemed to be concerned about us when we lost $22 million. But now that Harvard and Tufts are pulled out of the state, people are little more concerned. From a financial standpoint, we are well in excess of the statutory equity that’s required, even under the new standard, which by the way we supported. In the last legislative session our lobbyists were active in supporting the higher standard because we think it’s appropriate and right for the citizens of Rhode Island. We already are in excess of the 2000 required equity, which will prevent, in and of it self, another Harvard Pilgrim. An equity requirement of $100,000 just doesn’t cut it. An equity requirement for us that is about $8 million is significant improvement. We hold, again, unlike Harvard, about $70 million at this moment in claim reserves for claims that we know are incurred but have not been reported to us. We will always be able to pay hospitals and doctors for services no matter what happens.
But, we do have two concerns, and finances aren’t one of them. We think that the HMO liability legislation, if enacted prior to federal legislation, would be a mistake. It could cost employers a lot of money. In a state the size of Rhode Island it could really ruin the health care system in a way that could make this look like a walk in the park. We think that and some other legislation that’s currently being discussed, is an over-reaction to the situation.
