{"id":2684,"date":"2024-12-19T07:01:00","date_gmt":"2024-12-19T07:01:00","guid":{"rendered":"https:\/\/medical-article.com\/?p=2684"},"modified":"2024-12-19T07:01:00","modified_gmt":"2024-12-19T07:01:00","slug":"managed-care-history-part-iii-the-rise-of-machine-driven-managed-care","status":"publish","type":"post","link":"https:\/\/medical-article.com\/?p=2684","title":{"rendered":"Managed Care History Part III: The Rise of Machine-Driven Managed Care"},"content":{"rendered":"
\n<\/div>\n

This is part 3 of Jeff Goldsmith\u2019s history of managed care. If you missed it read Part 1<\/a> & Part 2<\/a><\/em><\/p>\n

By JEFF GOLDSMITH<\/p>\n

Two major changes in health insurance ensued as the US health system entered the 21st\u00a0century- a strategic shift of health cost risk from providers to patients and the emergence of machine driven managed care.<\/p>\n

Insurers Shift Strategy from Sharing Risk with Hospitals and Doctors to Markedly Implicating their \u201cPatients\u2019.<\/em><\/p>\n

After the 2008 recession, employers and their health plans shifted strategy from putting physicians and hospitals at risk through delegated risk capitation to putting patients at risk through higher patient cost sharing.\u00a0In the wake of the recession, the number of patients with high deductible health plans nearly\u00a0quintupled<\/a>\u2013to over sixty million lives.\u00a0By 2024, 32% of the lives in employer-based plans (50% among small employers\u2019)\u00a0were in high deductible plans regardless of patient economic circumstances. \u00a0\u00a0<\/p>\n

The stated intention of the High Deductible Health Plan movement\u00a0was to encourage patients to \u201cshop\u201d for care. In real care situations, however, patients found it difficult or impossible to determine exactly what their share of the cost would be or which providers did the best job of taking care of them.\u00a0For an extensive\u00a0review<\/a> of the literature on how healthcare \u201cconsumers\u201d struggle to manage their financial risk, read Peter Ubel\u2019s 2019\u00a0Sick to Debt: How Smarter Markets Lead to Better Care<\/a><\/em>.<\/p>\n

Employers and insurers, \u00a0working together to \u201cempower consumers\u201d, \u00a0rapidly shifted \u201cself-pay\u201d\u00a0 bad debts onto their provider networks. Some\u00a060% of hospital bad debts<\/a>\u00a0are now from patients with insurance.\u00a0Instead of \u201cshopping for care\u201d, consumers found themselves saddled with almost\u00a0$200 billion in medical bills<\/a>\u00a0they could not pay, and hospitals and physicians ended up eating most of it.\u00a0 \u00a0\u00a0<\/p>\n

This escalating \u201cinsured bad debt\u201d problem forced providers to hire revenue cycle management (RCM) consultants to revise and strengthen their policies regarding patient financial responsibility, \u201crevenue integrity<\/a>\u201d (meaning crossing all the \u201ct\u2019s\u201d and dotting all the \u201cI\u2019s\u201d in each medical claim and making sure care is coded properly) and rigorously monitoring the flow of claims to and from their major insurance carriers. As a result\u00a0many providers found themselves spending 10-15% of their total operating expenses on RCM!\u00a0<\/p>\n

Medicare Advantage Enables Insurer Market Dominance<\/em><\/p>\n

The movement from Ellwood\u2019s vision of regionally-based provider sponsored health plans to market dominance by huge national carriers was cemented by the emergence of\u00a0Medicare Advantage<\/a>\u00a0as the most significant and profitable health insurance market segment.\u00a0In 2013, Medicare Advantage accounted for 29% of total Medicare spending. A decade later, in 2024, it was\u00a054<\/a>% (of roughly a trillion dollar program).\u00a0And until a federal crackdown on MA coding and payment policies by the carriers, it was a\u00a05% margin business<\/a>, significantly more profitable than commercial insurance, ObamaCare Exchange or managed Medicaid businesses.<\/p>\n

As Medicare Advantage emerged as the largest health insurance market, it was dominated by a cartel of large publicly traded carriers.\u00a0 <\/p>\n

<\/span><\/p>\n

Six publicly traded carriers (United, Humana, CVS\/Aetna, Elevance\/Anthem, CIGNA and Centene) accounted for 69% of MA\u2019s 34.6 million enrollment as of\u00a0November 2024<\/a>.\u00a0 Kaiser, the \u201cfounder\u201d of the movement, added another 5.5%. The top two MA plans, United and Humana, account for almost 46% of MA\u2019s enrollment!\u00a0Sixty percent of United and CVS\/Aetna\u2019s health insurance premium flow and 90% of Humana\u2019s now come from this single program, according to a recent Bank of America analysis.<\/p>\n

However, owing to the aggressive promotional activism of consultants and private equity financed \u201cmanagement services organizations\u201d, the\u00a0median\u00a0<\/em>MA plan enrollment is less than 2000 lives (!). During the 2010\u2019s, Medicare Advantage became an industry in and of itself.\u00a0An amazing number of small hospital and physician sponsored plans are fighting over less than a quarter of MA enrollment, and, predictably, losing money on every subscriber (negative 5% margins are typical).\u00a0 Some communities have as many as\u00a0forty<\/em>\u00a0MA plans competing for their share of this lucrative market.\u00a0<\/p>\n

The Rise of Machine Driven Managed Care<\/em><\/p>\n

The huge national carriers rely, in turn, on a complex network of contractors to manage their Medicare Advantage care management and payment.\u00a0A shadowy industry populated with billion dollar high tech firms no one in the care system had ever heard of\u2013with names like Emdeon (now\u00a0Change Healthcare<\/a>,),\u00a0Equian<\/a>, \u00a0MultiPlan<\/a>\u00a0(taken private<\/a>\u00a0by Carlyle in 2024), naviHealth, Signify and Cotiviti\u2013emerged to service health plans with automated systems to review hospital and physician claims prior to payment.\u00a0<\/p>\n

These firms used AI driven machine learning to analyze and process the flow of hundreds of billions of dollars in medical claims. A significant fraction of those claims are denied, either because of data errors in the claims themselves, or because AI rules engines kicked them out for not conforming to constantly evolving\u00a0medical necessity criteria.<\/p>\n

Prior authorization, a forty-year-old HMO expense control tool for managing \u201celective care\u201d, has been augmented by \u201cprospective pre-payment review\u201d applied\u00a0after<\/em>\u00a0hospitals have admitted and cared for patients and submitted insurance claims. According to the American Medical Association, each practicing physician in the US is required to submit\u00a045 prior authorization requests for their patients each week.\u00a0<\/a>\u00a0<\/p>\n

Hospitals saw, in some cases, a doubling of claims denials or repricing in just a twelve to eighteen-month period after 2016 based on these automated \u201cprospective\u201d reviews. This surge of machine-driven denials played a major role in the\u00a0mysterious 39% plummet<\/a>\u00a0in hospital operating earnings seen in 2016 and 2017.\u00a0<\/p>\n

A key factor in the wave of denials was the increased centrality of hospital emergency admissions as the main gateway to complex and expensive inpatient care.\u00a0Upwards of\u00a070% of patients<\/a>\u00a0in many health systems are admitted through the emergency room and care is rendered to those patients on an urgent basis.\u00a0\u00a0\u00a0<\/p>\n

With primary care physicians withdrawing from hospital practice, decisions to admit patients to hospitals were increasingly made by employed physicians or physician contractors to the hospital, many of whom are \u201cout of network\u201d with the insurance carriers, and under limited control by the hospitals themselves.\u00a0 \u00a0\u00a0\u00a0<\/p>\n

After-the-fact denials by insurers often result in unexpected higher bills to patients with high deductible plans as well as significant new administrative expenses for hospitals to track and contest the surge of denials.\u00a0<\/p>\n

UnitedHealth Group Makes its Move<\/em><\/p>\n

Following the more than decade-long private equity rollup of these care managing tech firms after the year 2000 dot-com\/tech stock crash, an amazing percentage of this shadowy sector ended up being owned by a single company.\u00a0In a stunning rapid fire $20 billion acquisition spree from 2019 to 2021, UnitedHealth Group bought Equian,<\/a>\u00a0Change Healthcare<\/a>\u00a0and\u00a0naviHealth<\/a>.\u00a0The US Department of Justice unsuccessfully challenged the largest of these transactions\u2013the Change Healthcare acquisition\u2013 on anti-trust grounds.\u00a0<\/p>\n

By the time this blitz was over, United\u2019s $19 billion OptumInsight business intelligence subsidiary was processing\u00a0one-third of all medical claims in the US\u00a0<\/em>with automated claims management software\u2013a remarkable $1.5\u00a0trillion<\/em>\u00a0in health provider payments a year.\u00a0OptumInsight\u2019s largest single customer was United\u2019s health plans\u201363% of its total revenues.<\/p>\n

But OptumInsight\u2019s other customers were\u00a0competitors<\/em>\u00a0of United\u2019s\u00a0health insurance business (so much for \u201cvertical integration\u201d).\u00a0The RCM Industry, on behalf of physician and hospital providers, and Optum Insight have locked horns in what could be called The War of the Robots\u2013as dueling AI systems fought over the documentation, approval \u00a0and payment of trillions of dollars in medical payments.\u00a0 In the war between Skynet Medical and the RCM industry, patients and physicians have been reduced to mere datapoints.\u00a0<\/p>\n

COVID produced what proved to be a temporary cease fire in the War of the Robots.\u00a0This is because the shutdown of routine care in hospitals during 2020 produced a multi-hundred billion $$ windfall in cash flow for health plans including United\u2019s.\u00a0Denying care during a health emergency would have also produced a lot of ugly headlines, so health plans simply turned the denial machine off, according to colleagues in the revenue cycle industry. Health plans did not want to be socked with a \u201cwindfall profits\u201d tax (for exceeding ObamaCare\u2019s statutory medical loss ratio\u00a0 (MLR) limits.\u00a0However, when health plans medical expenses (so-called Medical Loss Ratios, or MLRs) began rising again, the denial machinery cranked up again, and the war resumed.\u00a0\u00a0\u00a0<\/p>\n

Physicians have been collateral damage in this war, because a huge fraction of their available practice time, as much as\u00a0half<\/a>\u00a0of their total hours, is now spent minutely documenting every single clinical decision they make in their electronic health record system, feeding the AI denial machine data.\u00a0<\/p>\n

Electronic health records were touted as a revolutionary tool for improving clinical productivity. Instead, they have become an all-seeing surveillance mechanism- a 24\/panopticon surveilling physician activity of behalf of vast insurance carriers, and depriving patients of direct care time spent with their physicians and other caregivers.\u00a0<\/p>\n

Skynet Crashes!<\/em><\/p>\n

It didn\u2019t take more than eighteen\u00a0months for the historic Optum roll-up of medical claims management software and services to blow up in United\u2019s face.\u00a0On Feb 21, 2024,\u00a0a shadowy Russian hacker collective AlphV invaded and crippled Change Healthcare\u2019s data systems<\/a>, shutting down\u00a0$120 billion a month<\/em>\u00a0in healthcare payments. Only eighteen months into owning all this apparatus, Optum\u2019s data systems were a hot mess, a highly vulnerable mashup of dozens of applications and databases rolled up from the dozens of smaller companies that were part of Change.\u00a0<\/p>\n

AlphV operatives impersonated a senior Change executive, stealing his login credentials.\u00a0The hackers used those phony credentials to find and exfiltrate (e.g. download and steal) about 8 terabytes of health claims information, including personally identifiable health information on 100 million Americans. Then they deleted Change\u2019s back-up files so they could no longer process medical claims. United paid a $22 million ransom payment to restore their files, but it was stolen by one of AlphV\u2019s members and their systems remained offline for months!\u00a0\u00a0<\/p>\n

The effect was markedly uneven depending on where providers were located and who they contracted with.\u00a0Some hospital systems whose health insurance payers used other vendors than Change saw no economic harm.\u00a0Other saw 100% of their cash flow crash to zero dollars and began incurring, in some cases, seven or eight figure\u00a0weekly<\/em>\u00a0operating losses. Physician practices all across the US were crippled, and owners were putting their payrolls for nurses and physicians on their personal credit cards or obtaining personal loans from their banks.\u00a0 \u00a0\u00a0\u00a0<\/p>\n

The Change outage was slowly restored over a four month period. United\/Optum has admitted so far to $3 billion in direct expenses for restoring their data systems. Lawsuits seeking to recover damages from United for the extra cost of months of submitting and tracking paper medical claims remain unresolved.\u00a0<\/p>\n

While one hundred million patients and their families experienced violations of their medical privacy, the Change hack revealed a major national security challenge. Fully one-third of all medical payments and\u00a0one fifth of US GDP<\/em>\u00a0were flowing through a single private company\u2019s leaky pipes. Foreign hackers have today the capability of reaching into United\u2019s data systems and basically crippling the US healthcare system.\u00a0After a scorching May\u00a0Senate Finance Committee hearing<\/a>, the US Congress took no action to close this gaping hole in data security for a key piece of US infrastructure.\u00a0Skynet Medical is now back in operation.\u00a0<\/p>\n

Managed Care in the 21st\u00a0Century\u00a0<\/em><\/p>\n

A managed care movement which began more than seventy years ago by empowering clinicians to manage care for populations in their communities within a fixed budget has devolved, by degrees, into an increasingly data-driven cash management system run by AI on behalf of vast, publicly traded health care conglomerates. Physicians pay a huge tax in time diverted from patient care, and patients bear an unpredictable and unmanageable level of economic risk for health care over which they have limited or no control.\u00a0 And a managed care industry dedicated to reducing healthcare costs added tens of billions in administrative expenses to hospitals and other care providers.\u00a0<\/p>\n

The early stages of this devolution spawned successful, high quality integrated health systems and health plans in some\u00a0 parts of the country. However, the last decade has seen a massive consolidation of health insurance in the hands of a small number of immense firms, through the explosive growth of the Medicare Advantage program.\u00a0 \u00a0\u00a0<\/p>\n

\u00a0In its recent\u00a010Q SEC filing<\/a>, after complaining about providers\u2019 aggressive coding practices and increasing Medicare utilization, United said, \u201cWe endeavor to mitigate these increases by engaging hospitals, physicians and consumers with information and helping them make clinically sound choices . . .\u201d\u00a0This helpful \u201cadvice\u201d from United\u2019s AI driven claims management system promises to restore United\u2019s lagging earnings growth.\u00a0<\/p>\n

Clinicians and hospitals are increasing managed by machines, not colleagues and their decisions dictated by algorithms they never see, rather than thoughtful clinical culture and human values.\u00a0Dr. Ellwood is likely rolling over in his grave.\u00a0<\/p>\n

Jeff Goldsmith is a veteran health care futurist, President of Health Futures Inc and regular THCB Contributor. This comes from his\u00a0personal substack<\/a><\/em><\/p>","protected":false},"excerpt":{"rendered":"

This is part 3 of Jeff Goldsmith\u2019s history of managed care. If you missed it read Part 1 & Part 2 By JEFF GOLDSMITH Two major changes in health insurance ensued as the US health system entered the 21st\u00a0century- a strategic shift of health cost risk from providers to patients and the emergence of machine…<\/p>\n","protected":false},"author":0,"featured_media":2683,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[],"class_list":["post-2684","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-articles"],"_links":{"self":[{"href":"https:\/\/medical-article.com\/index.php?rest_route=\/wp\/v2\/posts\/2684"}],"collection":[{"href":"https:\/\/medical-article.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/medical-article.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/medical-article.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=2684"}],"version-history":[{"count":0,"href":"https:\/\/medical-article.com\/index.php?rest_route=\/wp\/v2\/posts\/2684\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/medical-article.com\/index.php?rest_route=\/wp\/v2\/media\/2683"}],"wp:attachment":[{"href":"https:\/\/medical-article.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=2684"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/medical-article.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=2684"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/medical-article.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=2684"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}