Why Healthcare Costs Rise Faster Than General Inflation Part 2


By David Toomey and Tom Emerick

In the last blog post, we outlined the “complexity” of the network negotiation process and the challenging dynamics amongst 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 six to seven 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 by channeling members to higher value providers. Reports showed that within physician groups there was wide variation in physician performance – this took time for the employers to grasp since their businesses were focused on a consistent consumer experience—each cup of coffee was made the same way with the same ingredients. The use of claims data illustrates just one view of a providers’ performance, but it does not demonstrate their process of care or their ethics around medical appropriateness.

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” proposition beyond just claims based performance reports. The employers felt they were ready for the first meetings with a major health system we will call “the Provider”, and they outlined their capabilities and introduced their mission statement as well as their commitment to patients.

After the overview, the first employer question—“who is your customer?” The Provider’s response—“the patient, of course.” Second employer question—“who pays the bill?” The Provider responded with, “the insurance company”. In near unison, the employers responded that they were each self-insured, and they paid the bill. The Provider acknowledged the employers’ importance as well, and responded how they just introduced a new $3M phone system to make appointment scheduling more convenient for their employees, which would keep them at their jobs. A major airline executive had to contain his response: “you mean to tell me that you allocated $3M on a phone system from the dollars that I’ve funded for your services, when I’m faced with major layoffs! I’m done.” And from that one employer’s comment, one of the most rewarding journeys of David’s career began.

In the next employer meeting, the Provider provided the employers a clinical overview of their capabilities and their commitment to quality, and proudly touted their state of the art imaging machine as well as their Level 1 Trauma capabilities. The employers probed about the variation in care as seen in the claims based performance report, and all sides agreed that additional analysis was needed.

One employer then inquired about orthopedics and back pain, “can you walk me through your process for the treatment of back pain?”

The Provider mapped out the treatment for back pain – PCP visit, specialist consult, imaging appointment, specialist visit to review the image, physiatrist consult, and eventually a referral for up to 15 physical therapy (PT) visits. The research also found that PT was the recommended treatment 83% of the time. Meanwhile, the employers were paying for short-term disability, employee overtime to compensate for the disabled employee, and four to six weeks of unnecessary care while the employee suffered with pain. The employers expressed concern with this inefficient process of care.

The Provider realized that this treatment process was not well received by the employers. Rather than trying to develop a new process of care from the provider’s perspective, workgroups were formed including an employer representative, so the treatment of back pain could factor in the employer’s views since they ultimately paid the bill. After several meetings, the end state was developed – same day appointments with a physiatrist for back pain, and the standard PT treatment was less than 3 visits. The Provider was able to change their marketing message to promote same day appointments for back pain, while the employers also promoted the Provider’s enhanced treatment capabilities to their population.

The Provider took a risk as they were well paid for the prior treatment inefficiency, and their CFO struggled on the potential impact of lost revenue. The reality was that back pain treatment expenses were cut by 70+% due to the redeployment of excess resources, while their patient volume increased by 400%! This was a huge victory for the employers and their employees.

Due to the success of this workgroup, David developed other treatment workgroups, which had similar results. Employers were able to impact their healthcare costs, while creating free market competition with other providers, who had to change their process of care or risk losing additional patient revenue.

This kind of direct engagement by self-insured employers is one of the things employers need to do to start rolling back healthcare costs…not just holding health costs flat but rolling them back.

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