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February 4, 2016

New Way to Lower Healthcare Costs

Summary:

Open heart surgery at a beautiful, modern facility an hour from Miami costs $1,400 -- vs. the average of $324,000 in the U.S.

Photo Courtesy of World Bank Photo Collection

Managers are more likely to limit rental cars to $30 a day than limit an open heart surgery to $100,000 — for ethical and regulatory reasons, many executives steer clear of involving themselves in healthcare decisions, other than selecting the broadest possible network access. But few expenses that executives know so little about matter more than those involved in healthcare do.

This article speaks to a cultural shift that could provide tremendous impact for employers. They can now lower costs while also improving outcomes.

Until now, employers have used two main strategies:

–They offloaded costs to employees, hoping that giving them more skin in the game would reduce their spending on healthcare. But the continuing lack of transparency about healthcare costs, combined with costs that rose faster than employers shifted them, resulted in insurance picking up more cost and consumerism being driven down.

–Employers also invested in wellness programs. But wellness programs are most attractive to the already healthy. And they attempt to reduce how often enrollees encounter the system. But we know that everyone will encounter care at some point. It is each encounter’s volume and cost that is at the heart of this out-of-control system.

The new, better approach was demonstrated in a whirlwind, 48-hour trip I took with some incredible healthcare leaders.

First, we met with the executives of Rosen Hotels in Orlando, who have saved hundreds of millions of dollars compared with average employer healthcare costs. Rosen’s single-digit employee turnover would delight most employers, but it is spectacular in the hospitality industry. Rosen achieves this turnover with a benefit-rich plan most employees would drool over: e.g., no-cost prescriptions, $750 max hospital out-of-pocket.

How does Rosen accomplish this? First, its healthcare thinking is based on what it wants to achieve rather than what it has to provide. Beginning with the CEO, Rosen’s top executives really care about every one of their employees, as evidenced by the more than a few employees who have been there for 40-plus years. (Remember, this is a hotel chain, not a hedge fund with six-digit salaries). The strategies deployed vary, but they mainly support making the highest value care as accessible as possible.

Value—a fair return or equivalent in goods, services or money in exchange for something—is seriously lacking in American healthcare. Rosen took it upon itself to provide healthcare whenever and wherever possible, using its clout to lower costs. The company arranged special prescription drug discounts with Walmart. Rosen has on-site medical directors who personally engage with each employee’s health. The directors visit employees in the hospital and help arrange home delivery of costly specialty medications from lower-cost pharmacies. The company monitors and supports sick employees’ recovery and progress. It also built a health-and-wellness center for all employees and dependents with primary care, prescriptions, fitness instruction and more. I know all this sounds expensive, but the impact far outweighs the cost.

The second part of our adventure involved a flight to the Caribbean island of Grand Cayman, just south of Cuba, a beautiful tropical setting an hour-long flight from Miami (and with direct flights from a dozen other U.S. cities). The morning after our late arrival, we enjoyed the beautiful sunrise for exactly 20 seconds before we were bused to a facility called Health City Cayman Islands (HCCI). The single building on 200 acres (with significant future expansion plans) is clean, new and functional, though it is not nearly as grand as many U.S. mega-hospitals. Now two years old, HCCI is a joint venture between Ascension Health (a non-profit U.S. health system) and Narayana Health, a top Indian health system based in Bangalore. HCCI’s Indian roots are very important, because that country has no national healthcare or insurance system. The Indians have a novel approach to healthcare: You pay for it.

Narayana Health, which has achieved Joint Commission International (JCI) accreditation, performs a volume of procedures unprecedented in most hospitals. This volume is produced by a highly experienced team with quality outcomes that equal or exceed the best U.S. hospitals, but the team does it at far lower cost. Dr. Devi Shetty, Narayana’s founder and a cardiologist who has performed more than 25,000 heart surgeries, is focused on reducing the price of an open heart surgery to $800. (It currently sits around $1,400). Compare that with a 2008 Millman report that pegs U.S. open heart surgery costs around $324,000.

Some employers—Carnival Cruise Lines, for example—are so convinced of HCCI’s value (better health outcomes at far lower cost) that they will pay for all travel, including a family member’s accommodations for the length of a stay, and often waive an employee’s out-of-pocket costs associated with the procedure.

While HCCI’s pricing is higher than its Indian sister facility, many people could afford to pay for HCCI’s care with their credit card, if that were necessary.

HCCI charges a single, bundled fee that covers all associated costs, plus the cost of most complications — the director says, “Why should the patient pay for something if it was our mistake?” Compare that attitude with that at U.S. facilities, which have financial incentives to deliver as much care for as long as possible, and which get paid more if they make mistakes. HCCI’s upfront pricing model creates a serious incentive for efficiency and quality, because the facility is financially responsible for complications, infections and extra tests.

Patients and purchasers (i.e. employers and unions) should realize that nearly all U.S. healthcare—hospitals, doctors, drug companies and even insurance carriers—are structured to benefit from more care, rather than good, efficient or innovative care.

This means that purchasers and patients must use any available levers to get the best healthcare value they can. As Rosen and HCCI have proven, those levers are increasingly available.

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About the Author

David Contorno is president of Lake Norman Benefits. Contorno is a native New Yorker and entered this field at the young age of 14, doing marketing for a major life insurance company.

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