Tag Archives: healthcare cost

Healthcare Costs: We’ve Had Enough!

Healthcare is consuming an ever-greater share of corporate America’s balance sheet. According to the latest Kaiser Family Foundation survey, today’s employers spend, on average, $12,591 for family coverage—a 54% increase since 2005.

Some companies have finally had enough. Twenty of America’s largest corporations—including American Express, Coca-Cola and Verizon—recently formed a coalition called the Health Transformation Alliance. They’re planning to pool their four million employees’ healthcare data to figure out what’s working and what’s a waste of money.

Eventually, they could leverage their collective purchasing power to negotiate better deals with healthcare providers.

It’s a worthwhile experiment. The government has largely failed to rein in spiraling healthcare costs; in fact, by over-regulating the healthcare marketplace, it’s largely made the problem worse.

The private sector will have to take matters into its own hands and find ways to creatively deploy market forces to its benefit.

Collectively, U.S. employers provide health coverage to about 170 million Americans. Because many pay part—if not all—of their workers’ premiums, they’ve borne the brunt of the upward march of healthcare costs. According to the Kaiser Family Foundation, premiums for employer-based family insurance have increased 27% over the last five years, and 61% over the last 10.

Unfortunately, this growth won’t slow any time soon. The Congressional Budget Office estimates that average premiums for employer-based family coverage will reach $24,500 in 2025—a 60% increase over premiums today.

Understandably, companies are desperate to find ways to curb their healthcare spending.

Last year, one of every three employers reported increasing cost-sharing for employees, through higher deductibles or co-payments. Another 15% said they cut worker hours to avoid falling afoul of Obamacare’s employer mandate, which requires firms to provide health insurance to anyone working 30 or more hours a week.

See Also: Radical Approach on Healthcare Crisis

But shifting costs elsewhere simply masks employers’ health-cost problem. They’ll have to address inefficiencies in the way healthcare is delivered to bring about savings that will actually stick.

The Health Transformation Alliance sees three primary ways to do so.

First, companies will have to mine their healthcare data for insight, just as they analyze the numbers for sales, operations and other core business functions.

The Alliance will examine de-identified data on employees’ health spending and outcomes. The hope is to determine which providers are delivering the best care at the lowest cost and to then direct workers toward these high-performing providers.

The U.S. healthcare sector today is awash with ambiguity and a lack of transparency. A knee replacement can cost $50,000 at one hospital but $30,000 at another. Two hospitals may offer the same price on a procedure, but one may have a higher rate of infection.

Such differences matter. According to a 2013 report in the Journal of the American Medical Association, an infection can add, on average, $39,000 to a surgery’s price tag.

Second, employers will have to use their combined buying power to secure better deals on healthcare. Tevi Troy, the CEO of the American Health Policy Institute, the organizing force behind the Alliance, said, “If you brought together multiple employers, you would have more leverage, more covered lives, more coverage throughout the country in terms of regional scope.”

In other words, there’s safety—and potentially lower healthcare costs—in numbers.

Third, employers will have to educate their workers about how they can secure better care at lower costs.

Most consumers are clueless about where they should seek healthcare. They may welcome a gentle nudge from their employer toward a high-quality, low-cost clinic or provider. If it saves their bosses some money, all the better.

See Also: What Should Prescriptions Cost?

And as the Alliance hopes to prove, it’s a lot easier to borrow another company’s successful strategy for executing those nudges than to create one from scratch. An educational campaign that resonates with Verizon’s 178,000 employees, for instance, may do just the same with IBM’s 300-some-thousand staffers.

As Marc Reed, chief administrative officer of Verizon, explained, “What we’re trying to do is to make this sustainable so that kind of coverage can continue.”

Corporate America has been saying for years it cannot afford the healthcare status quo, with costs rising ceaselessly. But if employers use their healthcare data wisely—and capitalize on their collective bargaining power—they may discover that salvation from their health-cost woes lies within.

A Positive Comment (Finally) on Obamacare

Healthcare reform is certainly receiving its share of abuse. Whether the conversation is local or national, private or public, one is sure to hear how Obamacare is nothing but bad news — job destruction and the end of one’s ability to direct personal healthcare. Rarely do you hear a positive comment.

Until now, that is.

Read on to learn more about a market development that actually looks consistent with Obamacare’s objective of making healthcare delivery more efficient and less expensive.

Quality

One of the changes found in the voluminous law is the requirement for the government to begin considering the quality of care when making reimbursements under its insurance program, Medicare. A section of the law creates incentives for providers to pay more attention to the quality of their care, to receive a greater payment for their services. These incentives encourage what has become known as accountable care organizations, or ACOs. ACOs are not necessarily new legal entities, but rather are descriptions of healthcare delivery systems that place an emphasis on quality of care to reduce expense.

Seems like a reasonably good idea, but how do these same quality efforts work in the private commercial market? Not so well.

First, how can the initiatives be tracked when the patients are insured by third-party carriers? Who is rewarded when a provider does a good job, limiting readmissions and health costs? Who even knows when they do a good job? Second, how does community rating distinguish between those providers applying quality low-cost care and those running up the tab to enrich their bottom line?

Fast answer: Quality-care incentives being encouraged by Medicare are largely lost, and certainly not encouraged, when patients are covered by a fully insured or fixed-cost insurer.

What about high-deductible plans that match with the providers’ quality, efficiency and health efforts? No, these, too, are limited by rules imposed by Obamacare on the fixed-cost insurance market.

Community health plans

If the door is shut on providers trying to apply ACO strategies to the fixed-cost commercial market, what can be done? After all, if providers have reworked their businesses to focus on quality and efficiency, it seems illogical to apply these efforts in only the Medicare reimbursement market.

Fortunately, innovation is finding its way to provider systems, under the name of “community health plan.” A community health plan is a network, established by a regional medical provider, offering members of its community superior and affordable healthcare through a plan using only that provider or other like-minded regional providers. These new community health plans overcome the obstacles found in the fixed-cost insurer market and enable all the quality-care efficiencies to be applied in the commercial market.

Think about it: Community health plans were first developed because providers wanted traction with their local communities. They wanted local patients and buyers to call and buy from them first. That’s why many have already adopted a community health plan or at least looked into one years ago.

What providers found, however, was mountain-sized red tape, inconsistent application to their objectives and new rules related to Obamacare that made the idea of a community health plan a bad one.

Enter the stop loss group captive, or “medical captive.” A medical captive is a reinsurance vehicle that pools a layer of self-funded health benefit risk.  The medical captive solution enables providers to offer their community a health plan immediately. No regulatory red tape. Provider have a commercial market health plan where quality-care initiatives can be objectively monitored so cost savings and efficiency is not a guess or lost to a third-party insurer. Cost-saving rewards arising from quality and efficiency can be measured quarterly if not monthly under the medical captive approach. A provider’s cost-saving ideas receive real-time feedback.

The medical captive is built on a self-funded chassis that also delivers benefits over the traditional market. The post-Obamacare insurance environment includes community rating and restricted plan designs, but self–funded insurance programs avoid these potholes. Put another way, a self-funded insurance program fits nicely with the provider’s ACO efforts and allows most of the Medicare-inspired initiatives to be realized in the commercial market. So long as the medical captive is the financing vehicle being used by the provider’s community health plan, the disconnect between Obamacare’s quality initiatives and the commercial insurance market are resolved.

Who?

Hospitals are attracted to the medical captive as a form of community health plan for several reasons. First, the narrow network is gaining ground as a viable solution for keeping medical expenses under control. Employers and employees are now receptive to limiting choice to the local provider in exchange for a lower price. This is good news for the hospital without an existing health plan that is looking for traction with its local employers. The hospital-sponsored narrow network is an approach that is simple to implement with the medical captive. In addition, hospitals with existing community health plans of the fixed-cost variety now are looking to add the medical captive as another choice. Frequently, the hospital’s investment in claim paying services, network and, of course, ACO strategies seamlessly integrate into the medical captive.

Larger physician practices find themselves in a place similar to that of many hospitals in their quest to retain and grow their customer base. Offering a health plan with a capitated physician service component (with a set fee per person, no matter what care they need) is easily accomplished with a medical captive. Physician practices can quickly distinguish their practices from the rush of hospitalists with a health plan that incorporates much of their treatment philosophies, including ACO solutions. The flexibility of the medical captive built on a self-funded platform enables creativity in plan design and buyer incentives that mesh nicely with efforts by physician practice efforts directed at reducing high-cost diseases. Hospital services can then be delivered to the buyers through the health plan on a contracted basis. Measuring the effectiveness of the physician practice efforts at cost control is readily verified by reference to the medical captive underwriting results. It’s not hard to understand why larger physician practices are quickly moving to the medical captive as part of the solution for reinventing healthcare delivery.

Shared objectives

Everyone agrees with the objective of lowering the cost of healthcare. Not everyone, however, agrees with or understands what goes into the cost of healthcare. The cost and purchase of healthcare is more complicated than buying a pair of shoes, unfortunately. Most consumers do not see what it actually costs to receive a medical procedure or purchase a medicine. This is because many do not directly pay or see the cost of the care, but rather the buyers pay a fixed cost or premium and then enter a buffet of healthcare providers. Cost efficiency is a low priority and only mentioned at renewal time or when the overall price trend for the fixed cost interferes with the buyer’s budget.

Looking at Obamacare, we should be encouraged that healthcare providers are growing closer to the financing of care. If the law is encouraging the formation of new healthcare financing mechanisms that offer objective and immediate feedback on quality, cost-saving solutions, we are starting to reach our shared objective.  When buyers and sellers take even one step closer to achieving the same goal, healthcare starts looking more like buying a new pair of shoes.

A New Focus for Health Insurance: ‘Negaclaims’

Historically, the “do more, bill more” fee-for-service model of healthcare measured success by increased billings. In the fee-for-value era, we need a new framework for assessing healthcare results. Quality indicators are logical, but they are mostly geared toward measuring actions taken. We can borrow a concept from the energy sector for an additional metric.  We need a concept for removing waste and unnecessary care that could be inspired by a concept from the energy sector described in this blurb from Wikipedia for something called Negawatts.

Negawatt power  is a theoretical unit of power representing an amount of energy (measured in watts) saved. The energy saved is a direct result of energy conservation or increased energy efficiency. The term was coined by the chief scientist of the Rocky Mountain Institute and environmentalist Amory Lovins in 1989, arguing that utility customers don’t want kilowatt-hours of electricity; they want energy services such as hot showers, cold beer, lit rooms, and spinning shafts, which can come more cheaply if electricity is used more efficiently. Lovins felt an international behavioral change was necessary in order to decrease countries’ dependence on excessive amounts of energy. The concept of a negawatt could influence a behavioral change in consumers by encouraging them to think about the energy that they spend.

The healthcare parallel would be a “Negaclaim™” — i.e., an unnecessary claim avoided. This isn’t about simply denying care. Just as consumers aren’t interested in kilowatt hours, patients aren’t interested in claims — they want health restored and diseases prevented, which can be done more efficiently and effectively. When individuals are fully educated on the trade-offs associated with interventions, they generally choose the less invasive approach. A nice byproduct is that the invasive approaches are frequently more costly and medically unnecessary. The following are a few of many examples of how unnecessary care can be eliminated while improving the patient experience:

  • Day-to-day and chronic disease care: One of the key reasons Direct Primary Care (DPC) has proven itself to be the Triple Aim  leader is that a proper primary care relationship involves time spent with patients to explain trade-offs of various medical options.  Without incentives to push for “more,” DPC providers have demonstrated that they can reduce unnecessary utilization by 40-80%. By contrast, “hamster wheel” primary care has effectively turned primary care into 7-minute, drive-by appointments that leave little time to do anything but direct patients toward additional costly items, whether it’s ordering a prescription, test, hospitalization or specialist visit. In many cases, those could be avoided with a robust primary care relationship.
  • High Cost Procedures: Leah Binder wrote about what major employers such as Walmart, Loews, Pepsico and others are doing to reduce risk to their employees while also saving money, in What We Can Learn From Walmart: How Our Healthcare System Can Save Lives and Dollars. Employees found that 40% of the transplants that were recommended by local hospitals were deemed medically unnecessary by top physicians at the Mayo Clinic and other nationally renowned facilities. Employees were thrilled to avoid risky (and expensive) procedures. It also sent a great message to employees that their employer valued them enough to send them to the best medical centers in the world for second opinions.
  • End of Life: Quality of life is affected dramatically by the end-of-life decisions we make. This was outlined in How Not to Die. The system is oriented to do more even if it is at odds with quality of life. Doctors themselves recognize this when they are the patient, as described in Why Doctors Die Differently. While quality of life is the driving factor for patients and families, there is a second-order benefit that the procedures that reduce quality of life are typically very expensive.

The problem in healthcare has been that providers have incentives to do stuff because of the flawed reimbursement models that dominate our present healthcare system. Respected studies such as from the Institute of Medicine demonstrate that there is more than $750 billion in waste. PwC stated that more than half of healthcare spending is waste. Incentives have driven providers to encourage more interventions, and consumers have been led to believe that more is better even though, in many cases, less is more.

That has added a challenge for health insurers. The general perception is that health insurers reflexively deny claims (sometimes getting in trouble for that). This has resulted in health insurers having the lowest Net Promoter Score of any industry. Consumers have clearly decided that health insurers aren’t doing this for consumer benefit. Fair or not, they have concluded it’s simply for the financial health of the insurer. Clearly, health insurers need a different approach if they want to improve their image and the health of their customers while ensuring their financial viability.

One incentive that has changed revolves around the Medical Loss Ratio (see Aetna’s explanation here).  In contrast to “customer service” reps focused on claims, an investment in patient engagement can have the same or greater effect on reducing claims while qualifying as a healthcare expense. Enter patient engagement.

Patient Engagement Is the Blockbuster Drug of the Century
Leonard Kish made the case that if patient engagement was a drug, it would eclipse all blockbuster drugs before it. Kish cited results of studies showing benefit when patients were successfully engaged in their health.

Compared to those not enrolled in the study, coordinated care “patients have an 88 percent reduced risk of dying of a cardiac-related cause when enrolled within 90 days of a heart attack, compared to those not in the program.” And, clinical care teams reduced overall mortality by 76 percent and cardiac mortality by 73 percent.

Rather than reflexively denying claims and building up a mountain of ill will, insurance companies should invest resources in helping their customers get engaged in their health. Their customers would, in effect, “self-deny” their own claims.

Note that when I describe patient engagement, I’m including family members and caregivers. Did you know that families provide care valued at more than $450 billion per year  – more than our total spending on Medicare! Thus, much of what is outlined below speaks to caregivers (particularly with elderly patients), not just the patient. Having more resources/tools as a caregiver would be welcomed, as most of us have no clinical background and are thrown into a caregiving role virtually overnight.

[Disclosure: My patient relationship management company is one of the organizations providing patient engagement tools to healthcare providers, which is why I'm familiar with these examples.]

Just about every myth has been debunked about how patients of all types supposedly won’t get engaged in their health, whether it’s low-income diabetes patients, native American populations or the elderly. However, providers are largely failing in their efforts at engaging patients as they haven’t had the incentives, tools or training.  Provider-patient communications guru Stephen Wilkins points this out clearly in a few pieces.

Despite less than stellar results that Wilkins highlights, the initial attempts by providers at engaging patients are welcomed just as a muddy puddle of water in the Sahara Desert is welcomed. However, much more can be done.

Catalyzing Patient Engagement in Health Plans’ Best Interests
A wave of new requirements and challenges have crashed on top of providers. Insurers could help if they focus in the right areas and are mindful of the challenges. JAMA recently wrote a piece highlighting one facet of patient engagement — shared decision-making (SDM). Physicians aren’t going to magically take on this challenge without a change.

The brevity of visits constrains the opportunities to address these elements of SDM. Furthermore, clinicians are not adequately trained to facilitate SDM, especially eliciting patient values and preferences for treatment.

[Note: Resources to train clinicians on patient engagement are emerging. One would expect that a host of continuing education courses will emerge. One example is HIMSS (the professional association for healthIT), which released a seminal book on patient engagement.]

In the places where providers have successfully achieved the Triple Aim objectives with challenging patient populations, they have had payment aligned with outcomes. Teams were unleashed, led by doctors, to get creative about how to tackle the challenges. While doctors are vital, they use non-physicians for a substantial part of the interaction with patients. It turns out, for example, that doctors and even nurses can be less effective at effecting behavioral change in patients than non-typical care team members. Rather than being relegated to low-level tasks, medical assistants and health coaches play a vital role in the successful models. Once again, while the goal is an improved health outcome, there is a second-order benefit that being more effective lowers costs by avoiding complications, and the medical assistants and health coaches are generally paid less than doctors and nurses. Unfortunately, in a typical fee-for-service reimbursement model, these types of services typically aren’t compensated despite their impressive results.

Dr. Rob Lamberts described this problem in detail in Washington, We Have a Problem. He summarizes the conflict between people’s desires and healthcare’s flawed reimbursement framework.

This is why, I believe, any system that profits more from people with “problems” than those without is destined to collapse. Our system is opposed to the goal of every person I see: to stay healthy and stay on as few drugs, have as few procedures, and avoid as many doctors (and drug companies) as possible.

Health insurers have implicitly viewed their customers as adversaries by creating a claim-denying framework as the default. The smart health plans will figure out how to harness the consumer goals. This isn’t some fanciful dream as it has been demonstrated (profitably, I might add) by the physician-entrepreneur organizations outlined in The Hot Spotters Sequel: Population Health Heroes.

This isn’t about minor tweaks to a fundamentally flawed model. Rather, as one physician-entrepreneur put it, too many models are “putting wings on cars and calling them airplanes.” Rather, it’s supporting proven models where they have rethought care delivery – here’s how one physician-entrepreneur describes rethinking care delivery from the ground up (video).

While financial rewards are important, most physicians are not motivated primarily by money but by autonomy, mastery and purpose. In the successful models, the physician-entrepreneurs created their own autonomy and recognized that the focus of their mastery and purpose had to fundamentally shift. A nice byproduct was the growth of “Negaclaims” as the educated and empowered patients better understood the significant risks of overtreatment and errors.

Too frequently, health plans have tried to micromanage clinical processes. With proper financial incentives combined with a move toward enabling clinical teams to become masters at driving patient engagement, the health plan is much more likely to achieve the desired outcomes. As the Stephen Wilkins pieces referenced above illustrate, clinicians haven’t been trained or rewarded directly or indirectly for encouraging patient engagement. It should be no surprise that most haven’t achieved mastery in helping their patients achieve patient engagement. Instead, the language of medicine has been punitive and demeaning, talking about “non-compliant” patients as though they were petulant criminals. That doesn’t further the partnership between patients and their care teams, which is necessary for optimal outcomes.

Previously, I outlined the strong business case for patient engagement. Those who have understood that business case have moved on to practice the 7 habits of highly patient-centric providers. It’s clear that past efforts by health plans to reduce claims have fallen short and created ill will and sub-optimal health outcomes. Putting the patient/member at the center need not be a marketing gimmick. Rather, it’s central to the notion of “Negaclaims” and to a winning strategy in the fee-for-value era.

All Employers CAN Reduce The Cost Of Health Care

What health plans and brokers don't want you to know….

Sometimes it's humbling to admit what you don't know. It's even worse to realize that you don't know what you don't know (YDKWYDK – pronounced, yidick-widick). Well, last fall I was hit square in the face with an embarrassing case of YDKWYDK. Silly me, I presumed that within certain boundaries, actuarial science is, well, a science. Based on the experience/characteristics of a population, and the design of a plan, there was a narrow range within which premiums would be assessed. Not exactly.

Informed Purchasers Can Get Better Coverage And A Lower Cost
I advise employers about how to manage health care costs. That's what I do for a living. Well, I discovered there is a process for uncovering available savings of which I've been unaware. Let's call it the informed purchaser discount. It turns out if you:

  • Learn more about how rates get set (not necessarily based on actual claims risk), and
  • Discover where fees might be hidden (many places), and
  • Inform yourself on calculations health plans use to forecast cost and protect themselves from exposure (quite conservatively), and
  • Partner with someone who has the data platform and predictable process to uncover available savings, and
  • Design a new plan that aligns patient and provider interests,

You can pay a lot less for coverage.

Why Don't You Already Know About This?
Well, it turns out there are incentives built into the system such that:

  • Most brokers — who are paid by the plans — are reluctant to push back on plans for better prices, and
  • Brokers who do push back may get penalized by the plans with worse quotes or slower service, and
  • The timing of quotes are manipulated to rush decisions and leave less time for deliberations, and
  • Because it's a hassle to price many different designs, the plans and brokers often choose a favorite and don't bother to tailor it to specific client needs, and
  • All plans tend to operate this way, so you won't detect over-charging by simply comparing among them.
  • Thus, benefits managers are left reporting to the executive team, honestly: “This is the best I could find.”

Sigh. In other words, circumstances are stacked against the individual employer, especially small ones that are fully-insured. The traditional industry process is meant to keep us in the dark.

Worse yet, as traditional benefit professionals, we don't know what we don't know. There are many reasons not to rock the boat. Perhaps there is a long-term, trusted relationship with the broker; they've become our friends. Brokers won't tell you that they think you can get a better deal — otherwise you would question why they aren't getting it. Perhaps there is fear that getting a different broker or an outside advisor will be looked upon as a sign that we have made poor choices in the past. Perhaps it is simply easier to do what we always do. Perhaps we assume we will get the best deal through the competitive bidding process. Perhaps we assume that because we are smart and capable in other areas, the same approach applies in health coverage. Whatever the reason, the vast majority of businesses don't have the insight to demand and get the informed purchaser discount.

So, you ask, how much can that discount be? (Are you sitting down?) $1,000 to $3,000 per employee, every year. For a 500 person company, that equates to overpaying between a half a million and 1.5M dollars on health care over the past five years. It's shocking, it's appalling, it's something I would not have believed … but folks, it's real. And you can do something about it.

I have spent my professional benefit career advising employers about plan design, corporate policy, health care quality, and health interventions. All the while, I should have been encouraging them to partner with an experienced purchaser who knows the process and can share understandings of risks and incentives.

Stop Paying A Penalty Simply For NOT Being Informed
The only way to get an informed purchaser discount is to make the process transparent and work with someone who only has a financial incentive to save you money. This doesn't mean you fire your broker (unless you want to), only that you insist on having a broker who will partner with an independent plan reviewer/designer. You want someone who is not threatened by complete transparency — something you will learn is not welcomed by plans or most brokers. (If your broker resists, I can recommend a few who do advocate transparency and are open-minded).

What should the independent party do?

  1. Review your current plan and experience at no charge.
  2. Assess the savings opportunity at no charge.
    Explain your design options and confirm you are comfortable with specific types of changes. The savings should not be solely derived from making the plan less desirable, such as:

    • restricting access to providers
    • shifting large increases in cost to employees
    • design changes that discourage employees from choosing coverage
  3. If savings are not likely, state that fact, shake hands and part ways.
  4. Charge a reasonable fee, most of which is contingent upon meeting a minimum savings (e.g. $1000 per employee).

In other words, there should be no cost or risk to assess your opportunity, and the group who guarantees savings should get paid after the savings are achieved.

Does such an organization exist? Yes. It's not a brokerage, but a small, independent consulting group called Incenta, that is saving its clients a lot of money. Do I work for them? No, but I am introducing them to my clients because it feels bad not to. Will I be partnering with them in the future to bring this solution to more employers? Absolutely.

What Now?
This article is a stark departure from my usual analytical or policy-oriented discussion. Readers who know me know that I investigate topics thoroughly and thoughtfully. Despite this, all of us encounter situations where yidick-widick, and we discover new solutions to old problems. It's not a sin to find out we didn't know — but I've decided it's inexcusable to ignore it now that I do know.

Never have I been more convinced that a different sort of expert is needed. Plus, in this case it happens to be very low risk — no cost to assess potential savings, and the vast majority of fees contingent upon achieving $1000 to $3000 of savings per employee.

So, I encourage every benefits manager to become one of the (few) informed purchasers. Don't wait until your renewal is approaching. And don't be afraid to admit YDKWYDK — better to learn this now than continue paying the penalty for remaining uninformed. Call or email me or the others listed at the bottom of this article. Become informed. Your bottom line, and your company executives will thank you.

For those interested in following up, talking it though, or getting started toward a better process of getting health care coverage, feel free to contact:

Wendy Lynch
Send Email to Wendy

Dennis Kelly
Send Email to Dennis

Dave Dias (one of the transparency-advocating brokers I know)
Send Email to Dave