Quote-of-the-day mailing list
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Subject: qotd: UnitedHealth takes over risk adjustment function from
Date: Mon, 5 Nov 2012 06:02:23 -0800
From: Don McCanne <firstname.lastname@example.org>
To: Quote-of-the-Day <email@example.com>
November 3, 2012
Conflict-of-interest concerns raised as Obama races to implement health
By Alexander Bolton
The Obama administration is relying heavily on outside contractors to
implement a core component of healthcare reform as it races to set up a
federal health insurance marketplace before 2014.
The fast-approaching deadline gives the administration little time to
scrutinize private-sector partners for conflicts of interest.
The purchase of one of these contractors, Quality Software Services,
Inc. (QSSI), by UnitedHealth Group, a major healthcare conglomerate, has
sparked concerns about a potentially uneven playing field.
QSSI, a Maryland-based contractor, in January won a large contract to
build a federal data services hub to help run the complex federal health
It will be working with several other contractors, including CGI
Federal, Inc., to create the technological architecture for the exchange.
The quiet nature of the transaction, which was not disclosed to the
Securities and Exchange Commission (SEC), has fueled suspicion among
industry insiders that UnitedHealth Group may be gaining an advantage
for its subsidiary, UnitedHealthcare.
It is difficult to know QSSI's precise role because its contract is not
publicly available and the department of health and human services did
not provide a copy. A draft statement of work issued by HHS and used for
the bidding process offers a glimpse of what the contract requires.
It reveals QSSI will finalize technical and systems requirements to
develop and deliver plan management services, which includes the
certifying and decertifying of health plans offered on the exchange.
Plan management services also entails monitoring agreements with health
plans to ensure compliance.
The technology will wield massive flows of socio-economic and health
information for populations around the country that an insurance
company, if privy to, could use as valuable business intelligence to
determine what markets to play in.
If an insurance company had influence over the information technology
architecture used to run the exchange, it could interpret federal
standards in a way to exclude competitors or make it more difficult for
them to win approval, say some insurance experts. Or it could have an
inside track on knowing how to design plans that meet the standards.
The contractors working on the exchange will also have responsibility
over payment calculation for risk adjustment.
This program is intended to redistribute funding from plans that attract
younger and healthier participants, and thus have lower costs, to plans
that attract people with more chronic diseases.
The draft statement of work for the contract shows QSSI will also work
on technical requirements to deliver financial management services, such
as payment calculation for risk adjustment.
The prospect that a subsidiary of UnitedHealth Group could have a role
in calculating the reallocation of federal funds among rival health
plans has unnerved some industry insiders.
"Financial management services include the services necessary to spread
risk among issuers and to accomplish financial interactions with
issuers," the document states. "The risk spreading services include but
are not limited to: payment calculation for reinsurance, risk adjustment
and risk corridors, along with required data collection to support these
The contract, which underwent a full and open competition, was initially
awarded to QSSI in September of 2011 and finalized in January.
A senior executive with Optum, the subsidiary of UnitedHealth Group
which bought QSSI at the end of September, said his firm and
UnitedHealthcare are entirely separate businesses despite belonging to
the same parent company.
"UnitedHealthcare is a client of Optum, an arms-length client,
separately reported financially and separately managed," said Andy
Slavitt, group executive vice president at Optum.
"Optum has a very simple mission and that is to engage in activities to
make sure the healthcare system works better for all participants," he
said, citing services such as helping an employer or union manage
pharmacy benefits or helping a health company implement technologies."
Comment: One of the many reasons that we don't want private health
insurers to manage our health care funds is that they have mastered
gaming health care risks.
In the Medicare program, private insurers have selectively marketed
their Medicare Advantage products to healthier individuals, yet have
been paid at higher rates based on the average health care needs of this
older and sicker population. The Medicare administration attempted to
correct for this by risk adjustment. That is, they increased payments
for patients diagnosed with more significant disorders, while reducing
payments for patients with minimal disorders. The insurers responded by
coding not very sick patients as if they had more serious disorders -
not frank fraud, but taking liberties with diagnoses. Instead of
correcting the overpayment problem this actually further increased the
amount of overpayments to the private insurers.
With the Affordable Care Act, do you believe that the private insurers
have had an epiphany and now want to give patients and taxpayers the
best health care value possible? If you think so, you don't understand
Follow this timetable:
* The Obama administration decided to use outside contractors to build a
federal data services hub to help run the federal health insurance exchange.
* One of the more important functions of that hub is to have
responsibility over payment calculation for risk adjustment. "This
program is intended to redistribute funding from plans that attract
younger and healthier participants, and thus have lower costs, to plans
that attract people with more chronic diseases."
* Under a competitive process, the contract was awarded to Quality
Software Services, Inc. (QSSI) in September 2011, and finalized in
* Steve Larsen, a senior official at HHS "left the Center for Consumer
Information and Insurance Oversight, the office tasked with crafting
rules for the national exchange, in July to take a job with Optum."
* In September 2012, QSSI was purchased by Optum, a subsidiary of
UnitedHealth Group, the parent company of UnitedHealthcare, the largest
insurer in the nation.
Lest anyone might suggest that Steve Larsen may have been involved in a
nefarious plot to benefit UnitedHealth, former Rep. Earl Pomeroy, a
registered lobbyist with Alston & Bird, which represents Aetna,
"dismissed the notion that Larsen may have given Optum an unfair advantage."
UnitedHeathcare's stealth takeover of the administrative entity that
will allow their subsidiary to supervise risk adjustment for the plans
in the federal health insurance exchange should have us all concerned.
Considering their prior bad behavior, should we trust them now that they
have even greater control over risk adjustment? Think not.
Okay, it's clear that the problem is that we have turned control of
health care financing over to an industry that must place its own
interests over those of patients. So what is the solution? Do we further
increase regulatory oversight? History has shown that they will always
meet their fundamental business obligations by finding other ways to
skirt regulatory interventions, just as they found a way improve their
return when risk adjustment was applied as a solution to their practice
of favorable selection (selectively marketing the healthy).
No, it is not that they need more government oversight, because that
clearly is an inadequate solution. Rather, the solution is that this
industry needs to be replaced with a public program owned by the people
of this nation. We need a public service model instead of a private
business model of health care financing. We need a single payer national
health program - an improved Medicare that covers everyone.