February 17, 2016
Why Healthcare Costs Soar (Part 2)
by Tom Emerick and David Toomey
Healthcare providers have processes that are wildly inefficient -- but that can be fixed with a little input from self-insured employers.
This is the second of a two-part series, by David Toomey and me, on why healthcare cost growth has historically been much higher that general inflation.
In the last blog post, we outlined the complexity of the network negotiation process and the challenging dynamics among the insurance companies, the providers and the employers. The majority of employers have not seen financial data or interacted with providers enough to understand the quality and cost variation within a network. The big question looming is what to do around contract negotiations tied to network access, patient disruption and costs.
David invited a half-dozen large, self-insured employers in a market to delve deeper into the clinical care and cost variation analysis. The intent was to share performance data with the employers, so they could understand the positive financial impact that could come from channeling members to higher-value providers.
Reports showed that, within physician groups, there was wide variation in physician performance. But this took time for the employers to grasp because their businesses were focused on a consistent consumer experience—each cup of coffee made the same way with the same ingredients.
After a basic grounding in the data, the next step was to have the employers meet with the largest systems and physician groups, so the companies could get a sense of these suppliers’ value propositions beyond just claims-based performance reports. The employers felt they were ready for the first meetings with a major health system that we will call “the provider,” which outlined its capabilities and introduced its mission statement as well as its commitment to patients.
After the overview, the first employer question was, “Who is your customer?” The provider’s response: “The patient, of course.” Second employer question: “Who pays the bill?” The pr