I spent the day at Health 2.0 conference in the Bay Area. This is the third year of the conference, and it has grown from a fringe group of early adopters and application developers to a bona fide e-patient movement, probably spurred by the broken health care system.

Health plans already know that whatever versions of Obama’s reform plan are passed, they will be dealing more with consumers and less with employers in the future. They are are investing in the tools to do a more subtle form of medical management than they did in the ’80s, when the HMO movement became known for the dreaded “gatekeeper” concept of denying care. During the heyday of this concept, health care costs escalated about 25% over a decade.

However, consumers became so angry that in 1999, one of the largest payers, UnitedHealth Group, said it would do no more medical management. All other plans had to follow suit, and with no effective medical management, health plan costs exploded 60% between 2000 and 2007. 20% of all commercial plan enrollees have been priced out of coverage, and now health plans have decided to be proactive again and turn back to management. But this time, they are trying to shift the paradigm and get the patient to be the manager.

Health Innovation’s Jerry Reeves, the medical director for union plans across the country, says hospitalizations are no longer the key drivers of rising costs. Costs are now being driven by ambulatory settings like ERs, outpatient settings, imaging centers, and the outsourcing of diagnostic activities outside the physicians office. A doctor visit would be the low cost solution, but people are not getting access to physicians’ offices, and wind up in the ER, which costs 13x as much to deliver the same services. In addition, Reeves said people are not getting lifesaving treatments and things they really need, because the system is so broken. He is trying to move to value-based health care.

Mohan Nair is a serial entrepreneur now with Regence BCBS, a four-state plan that has been working for last 6 years to help the system change. Regence is trying to invoke a vision of health care as everyone’s community asset: the consumer has to recognize that it’s his money and his future. Although there’s plenty of blame to go around in the health care industry, rather than trying to find someone to blame, Nair says, insurers have to change, and change quickly, altering their centers of gravity to the consumer and helping the consumer make better decisions, balancing medical management with consumer engagement. Of Regence BC/BS’s 3 million members, 30% are already actively engaged in online communities.

Over the past two years, CIgna’s 8.5 million domestic” lives” have already seen a transformation from their old school insurance company to a customer-centric universe Focused on what people actually want from this system, Cigna participates in Facebook, Twitter, Second Life, Eliza, and Intuit (Quicken Health). Cigna patients can download all their claims information in Quicken Health and see what’s been paid, what hasn’t been paid, and what their responsibility is. The application both tells people how much is actually being covered by their insurance, and explains why things are not covered — in plain English. Cigna patients have seen their information made transparent and delivered to them through many interactive channels. However, merely making information available does not necessarily encourage people to change their behavior. You need to have a motivated patient that’s willing to act on the information.

But at least the new system invites the patient in, which the current health system does not do.

Nathan Moracco, St of Mn Management and Budget supports the employer group for the state of Minnesota, and has devised for the state a tiered product with care systems ranked on a cost and quality basis, layered on top of incentives for members to seek the right care at the right time. The state is doing quality management around diabetes and depression care right now, because veryone knows that 5 chronic diseases account for 70% of the health care spend.

Chris Ohman of Kaiser (8.5 million members, ten states,) says they are putting finishing touches on installing their health IT system throughout the enterprise with an emphasis first on clinical care management, and second on the customer experience. Kaiser, too, knowing the numbers, is making big steps forward in chronic disease management, delivering what they feel are better benefits at lower costs.Engagement of consumers is related to this and Kaiser patients are filling prescriptions, making appointments, getting test results on the web, and then engaging with the physician.

Here’s what happens when a healthy, young, employed person with health insurance tries to use it.Reposted from my friend Howard Lindzon’s Facebook notes

I was hanging with my buddy Ian over the weekend who was recounting the horror stories of cancer and the seemingly equally difficult fight for his already paid health insurance. I asked him to write an article about it. Hopefully we can raise some awareness.

The Health Insurance Trap
Ian Sigalow

At the center of the healthcare debate is a belief among many Americans that our private health insurance system isn’t working. If you had asked me a year ago, I would have said that the government shouldn’t intervene in health insurance. Fast forward to today, after a cancer diagnosis and 4 months of chemotherapy, and I have a very different opinion on private health care. This is my story.

I was diagnosed with Seminoma in August of 2008 at the age of 29. Seminoma is a type of testicular cancer that affects one percent of all men, and it is the most common type of cancer among men aged 20 to 35. It is often cured by surgery alone, but advanced disease requires either radiation therapy or chemotherapy in addition. I was unfortunate. By the time I was diagnosed, the cancer had spread to my lymph nodes, so I had to undergo chemotherapy.

My insurance provider was Oxford Healthcare, a subsidiary of UnitedHealth, the largest private health insurer in the United States. When it comes to testicular cancer, the Centers of Excellence are Indiana University, which treated Lance Armstrong, and Memorial Sloan Kettering Cancer Center (MSK) in New York. Not only is MSK a great hospital, but it is also three blocks from my apartment. Chemotherapy patients have suppressed immune systems, so the usual ways of getting around New York, such as riding the subway, are not recommended. Like most New Yorkers I also don’t have a car. It was comforting to know that I could get to the hospital without an ambulance in case of emergency, which actually happened twice during treatment. Unfortunately MSK was out of network with my health plan.

I was rushed into chemotherapy because of my staging, so I had ten days to find a way to get MSK in network, either by upgrading plans or switching coverage. After a week I realized that neither option would work. There wasn’t enough time to switch plans because the paperwork takes weeks. I also couldn’t upgrade my plan because I work for a small business, and Oxford’s better plans are reserved for large employers. I was willing to pay any amount to get in-network access but there were no options. However, I learned that Oxford offers an “in-network exception”, where in-network privileges are granted to out-of-network hospitals based on doctor referral. I was told that if three Oxford oncologists referred me to Memorial Sloan Kettering, an in-network exception would be granted.

Oxford supplied me with a list of 300 doctors to call. Many of the doctors on Oxford’s list were no longer practicing, or had specialties outside of oncology. I found two databases online (one of which, Vitals.com, my firm later invested in) and spent the next few days researching and calling doctors with the help of a health advocate. After a lot of work I reached ten oncologists. On consultation all ten told me that I should go to Memorial Sloan Kettering based on the advanced state of my disease.

When I relayed my findings to Oxford they reneged on the offer they initially gave me and the health advocate. In addition to my calls, Oxford was going to call another set of doctors to see if they could find someone in-network to treat me. I asked the woman from Oxford why I was told to make the calls if Oxford was planning on doing it themselves. Her response was, “We were hoping you wouldn’t bother.”

A few days later Oxford called with their feedback. I saved the voicemail at home – partially because I was so infuriated and partially because the timing was so prescient. Oxford waited until late Friday August 22 to call, knowing that I was scheduled for chemotherapy at MSK the following Monday morning. Oxford was very careful with their explanation, “We cannot tell you not to go to Memorial Sloan Kettering, and we cannot tell you to delay treatment. However, we found three doctors in New York who agreed to meet with you. It will require a new consultation…” In order to get Oxford’s full coverage I had to delay treatment. I made the decision to go out-of-network.

I tried to quantify in advance the costs of out-of-network versus in-network, but it was impossible. I had all the procedure and drug codes, and I had the re-imbursement rates from Oxford based on my out-of-network benefits. The best estimate of my out-of-pocket expenses at MSK was somewhere between $5,000 and $7,000.

The final bill for treatment came to $68,000. My share of this bill, after Oxford paid their usual and customary, was $35,000. I later called the three doctors that Oxford had recommended, and based on more complete information they said that I made the right decision to go to MSK. I also found out from a former Oxford executive that patients with out-of-network benefits are almost never granted an in-network exception, so that battle was lost before it began.

What surprises many people is that the largest part of the bill was not doctor’s fees – those were only $3,000. The big piece was the medicine. Because I was out-of-network, Oxford’s negotiated rates on medicine with the hospital didn’t apply. This means that Memorial Sloan Kettering can charge whatever they want and a patient has no recourse. One example of how this adds up: I was prescribed three shots of Neulasta, which is a white blood cell booster. At drugstore.com, a single shot of Neulasta costs $3,500. At Memorial Sloan Kettering, it was $5,600. Oxford’s usual and customary reimbursement was $2,600. I didn’t have a choice, I was left with $9,000 out of pocket for three shots. It is remarkable that three shots can cost as much as a down payment on a house.

As I sit here a year later and write this I can’t help but think I am one of the lucky ones. I survived cancer, which 30 years ago would have been a death sentence. I also had health insurance, which means I am better off than 40 million Americans. However, I was astounded at how little health insurance actually covers when you get sick. And one final addendum to this story: As of June 30, 2009, Oxford added Memorial Sloan Kettering to their network, although they refuse to make it retroactive for my treatment nine months earlier. I am still fighting with both the insurance company and the hospital, and may never find a way out of the health insurance trap.