Archive for Tom Emerick

The business of healthcare

In this article by Tom Emerick and David Toomey, founders of Thera Advisors, we describe a new view of business of healthcare.


Let’s face it, healthcare is a big business – it’s 17.5% of our GDP and expected to be at 20% by 2025. For the physicians and hospitals, the competition is on for the “under 65” patient as that payment is generally 150+% higher than a Medicare patient.

As a business owner, the healthcare suppliers have to determine if their pricing model is to offer a low price per service based on a higher volume, a high price per service based on a lower volume, or somewhere in between. Of course, you can have the occasional healthcare supplier charging a very high price per service with the goal of a higher volume. Yes, the insurance carriers will do their best to negotiate a competitive price per service with each supplier, but the reality is that there is up to a 300% price variation by a line of service amongst network providers.

The healthcare suppliers also have the option to just deal directly with the patients and not participate in a carrier’s network, and this scenario is more common with niche facilities and specialty providers. For facility-related expenses, there is not a Reasonable & Customary (R&C) reimbursement level, so out-of-network facilities are generally reimbursed at their higher submitted amount. There is a movement to implement a cap tied to a Medicare percentage for these types of scenarios, and more employers are adopting this option.

Once the healthcare suppliers define their pricing model, the next objective is to increase patient flow, which drives revenue. As seen with other industries, there are a number of initiatives to influence the healthcare buyers’ behavior. If you drive down a highway, it’s always interesting to see the number of healthcare billboards, and we are also seeing an increase in TV commercials. Some physicians have invested in their own facilities and specialty services, and they can drive patient volumes by scheduling procedures at their centers. In addition, a few providers may give patients financial incentives to use their services and facilities.

In a recent landmark decision, Cigna was ordered to pay an out-of-network provider more than $13 million to cover certain alleged underpaid claims and ERISA penalties. ERISA is the Federal law governing large employers who self-insure their medical plans (generally those with over 250 employees). In the lawsuit, Cigna made allegations that the supplier was failing to collect the patients’ deductibles and coinsurance, and this provider was accepting as “payment in full” the amount processed by Cigna on behalf of the employer. The Summary Plan Documents (the carrier’s contract with the employer and the employee) state that “the plan” covers a percentage of the bill, and the insured has a financial responsibility as well. Cigna took the position that if the healthcare supplier does not collect any payment from the patient, the plan has no payment due since the provider’s bill is to be a shared financial responsibility between the patient and the plan – if patient’s portion is waived, the plan’s portion is waived as well. The carriers’ intent is for the supplier to collect the deductible and coinsurance from the patient, so there is awareness of the supplier’s charges and of their shared responsibility for the bill.

When suppliers “forgive the patient liability”, these healthcare providers often have a revenue model of very high prices with the goal of higher volumes. Their mentality is that they’ll entice the patient to use their services since the patient does not have to pay anything, and the payment received from “the plan” will more than cover the patient’s forgiven liability.

Even though the average employee deductible is high at $1,300, most patients have not grasped that healthcare suppliers are running a business and that prices vary. While the employee (the patient) may save money when the provider waives their financial responsibility, they lose in the end as their employers’ costs increase, resulting in higher health insurance cost share with larger deductibles and payroll contributions for all employees.

The Court rejected Cigna’s claims denial for this provider, who allegedly forgave the patient’s financial liability. This ruling creates further risk to the affordability of healthcare for employers, as employees will be financially motivated to access care from suppliers with higher prices since the patient’s liability is forgiven. Can we expect other healthcare suppliers to implement a revenue model tied to high prices with no patient liability?

In speaking with a number of healthcare suppliers, many do not realize that most large employers self-insure their medical plans, and they perceive that the insurance carriers covers the costs. For us to solve this disconnect, the purchasers (the employers) have the opportunity to engage the healthcare suppliers (hospitals/physicians) in a collaborative discussion around supply chain management, quality, and patient safety, so the providers fully comprehend that the one ultimately paying the bill is monitoring their performance. I’ll look forward to sharing the results of this type of collaboration now underway in a major market. It’s time for employer-driven healthcare.


Tom Emerick and David Toomey are founders of Thera Advisors. Their focus is to help employers maximize their role as the purchaser of healthcare services in working with suppliers to impact their population’s health and to lower costs.

Employers’ Declaration of Independence From Traditional Health Insurance by Dave Chase

Forbes carried a good article by Dave Chase, a leader in trying to reform healthcare in the right way. Writes Chase, “Employer frustration over the devastating collateral damage from a severely under-performing healthcare system is boiling over.” Click here to read the full article.

High health costs are driving US jobs to Mexico and other countries. GE and scores of other companies are exporting high value jobs. Some are even moving jobs to areas in the US where healthcare costs are less exorbitant. IBM is a good example of the latter. Yet Dave and others have demonstrated that rising health care costs can be controlled, and controlled in an employee-friendly way. What an irony.

Dave has created a Declaration of Independence From Traditional Health Insurance. The article lists a number of thought leaders, consultants, and employer leaders who have signed that declaration, the goal of which is to create a sustainable healthcare equation in America.  Signers include Al Lewis, Jim Millaway, Rajaie Batniji, Brian Klepper, Stan Schwartz, your humble author and others who have implemented effective health programs.

Of me he wrote, “Emerick’s Edison Health has made available the Centers of Excellence program for complex and expensive medical procedures to any self-insured company.” I’m flattered to be on Dave’s list.


Tom Emerick

Tom’s latest book, “An Illustrated Guide to Personal Health”, is now available on Amazon.

Cracking Health Costs…the book

Employees Benefit News has listed Cracking Health Costs, the book, as a must read book this year.  (Al Lewis and I were co-authors.) That’s not bad for a book that is three years old.

CHC just keeps on selling. Why? My guess is that as more and more companies are coming to the conclusion that their wellness vendor won’t solve  their health cost problems, they are turning to solutions that actually save money and get better health care for their employees…and save employees money. As one top HR officer once said, that’s a trifecta of goodness. CHC shows how to do that.

Thank you for reading this blog and thanks to those who bought the book.


Tom Emerick

Tom’s latest book, “An Illustrated Guide to Personal Health”, is now available on Amazon.

Is old time transparency kaput?

In this article by Tom Emerick and David Toomey, founders of Thera Advisors, we describe the challenges in “transparency”.


During the ‘90s, a new medical plan, called Consumer Directed Healthcare, was introduced to the market. These new plans were based on the premise that through a high deductible coupled with a funded account, employees would be incented to become better consumers of healthcare. To maximize the account dollars, employees have access to a transparency portal either through their carrier or a private vendor, and the tools would help individuals make a more informed healthcare decision. The belief – physicians and hospitals would be motivated to win patient volume by competing on price and quality, and healthcare costs would finally be reduced with the consumerism movement.

A recent article from Health Care Cost Institute (HCCI) reported that only 43% of healthcare expenses are for services that may have been shopped by a motivated employee.

For the 8% of the population consuming 80% of plan dollars, how motivated are they to shop for healthcare services if they are receiving 100% coverage once their deductible is satisfied?

For the remaining 92% of the population accounting for 20% of the spend, how much savings can be attained for the 43% of their “shoppable” healthcare services? Let’s see…43% of 20% is 8.6% shoppable services. That’s not much and many shoppable healthcare services don’t cost much anyway.

If the majority of a covered population accesses healthcare on an occasional basis, do we really expect them to remember the various portals and 800#s available to them, so they pause and think about the cost and quality of the recommended provider for the prescribed service? How does infrequent healthcare use correlate to the effectiveness of the transparency portals?

One of the private transparency portals recently released their 4th 2015 quarter results, and for the quarter, they experienced a net decrease in user count (number of clients).

So how do we solve the healthcare challenge since most individuals are not regular healthcare users? And how do we address the 80% of the spend? What role can a primary care physician play to educate the patient on the cost and quality of providers and to impact the “8%-ers”? Similar to most other industries, the purchaser (the employer) has the opportunity to work more closely with the supplier (the providers) to drive the removal of the non-value added waste and of the cost inefficiencies. The silver bullet to solving the healthcare challenges – the employers! There are employers taking this logical next step to address their challenges. Are you ready for meaningful solutions?


Tom Emerick and David Toomey are founders of Thera Advisors. Their focus is to help employers maximize their role as the purchaser of healthcare services in working with suppliers to impact their population’s health and to lower costs.

ACA: where we are today?

In this article by Tom Emerick and David Toomey, founders of Thera Advisors, we describe the net effect of ACA.


The healthcare industry is changing – same old headline. You have read of all the buzz regarding ACOs, PCMH, ACA, and every other acronym. Since we’ve been in the industry, the “unsustainable” cost increases have been the talk every year, yet somehow we have not reached a tipping point. So what’s different now? How has ACA impacted the healthcare industry, and more specifically the insurance companies?

The drafters of ACA set up a perfect adverse selection scenario – come one, come all, with no questions asked. First objective met – 20 million individuals now have coverage.

Next objective – provide accurate pricing for these newly insured. Insurance companies have teams of individuals who assess risk, so they can establish an appropriate price for the insurance protection. We experience this “underwriting’ process with every type of insurance – home, life, auto. In fact, we see this process with every financial institution, like banks, mortgage companies, credit card companies, etc. If a financial institution is to serve (and an insurance company is a financial entity), it has to manage risks, e.g., loan money to people who can repay the loan. Without the ability to assess the risk of the 20 million individuals, should we be surprised that one national insurance carrier lost $475M in 2015, while another lost $657M on ACA-compliant plans? Now if you’re running a business and a specific line has losses, your choices are pretty clear – either clean it up or get out.

Risk selection is complex. When you add this complexity to the dynamics of network contracting tied to membership scale, there is a reason numerous companies have made the decision to get out of health insurance. In 1975, there were over 2,000 companies selling true health insurance plans, and now there are far fewer selling true health insurance to the commercial population. Among the ones that got out were some big names – MetLife, Prudential, Travellers, NYLife, Equitable, Mutual of Omaha, etc. And now we’re about to be down to a few national carriers, which is trending consistently with other industries – airline, telecommunications, banking, etc.

Let’s play this one out for the 20M newly covered individuals. The insurance companies have significant losses on ACA-compliant plans. Their next step – assess the enrolled risk, and determine if they can cover the expected costs. For those carriers that decide to continue offering ACA-compliant plans, they will adjust the premiums accordingly. While the first year enrollees are lulled into the relief of coverage, they then get hit with either a large increase or a notice to find another carrier. In some markets, the newly insured may be down to only one carrier option. The reason most individuals do not opt for medical coverage is that they can’t afford it. If premiums increase 15% or more, how many of the 20M have to drop coverage because premiums are too expensive? Do we start the uninsured cycle all over again?

Net net, ACA has enabled more people to have health insurance, but at prices that are even less sustainable than before. ACA offers a web of subsidies to low income people, which simply means each of us, including businesses, will be paying for part or all of their premium through taxes. As companies compete globally, this additional tax burden will impact the cost of services being sold. As our individual taxes increases, we reduce our spending. While ACA has the right intention of expanded coverage, the unintended consequences of the additional cost burden on businesses and individuals will have an impact on job growth.

While it’s hard for anyone to dispute the benefits of insurance for everyone, we first need to address the drivers behind the high cost of health care, so we can get the health insurance prices more affordable. Unfortunately, ACA steered us further in the wrong direction. Self-insured employers are the key to lead the way in true reform of the cost and quality of healthcare.


Tom Emerick and David Toomey are founders of Thera Advisors. Their focus is to help employers maximize their role as the purchaser of healthcare services in working with suppliers to impact their population’s health and to lower costs.

Healthcare Quality: we all want it, but few agree on how to define it

In this article by Tom Emerick and David Toomey, founders of Thera Advisors, we describe various ways to define healthcare quality.


In a previous article, we referenced CMS’s new provider reimbursement model, called Medicare Access and CHIP Reauthorization (MACRA), which replaces the current reimbursement formula. MACRA will include an incentive component that will replace the incentive programs in plans today, and the details of the performance criteria are being determined for roll-out in 2019. From the providers’ lens, they are faced with the need to hire more administrative resources to keep up with the tracking of their performance, and the big question is – are consumers making different choices based on the performance results of a physician or hospital? When there are over 150 different measures in place today, how is an occasional consumer of healthcare services able to assess the most important criteria in finding the right physician?

During a recent employers’ conference on the east coast, the forum featured two panels consisting of the healthplans and the providers. The panels were set in a Q&A format to enlist the leaderships’ views on various topics facing the employers, and it was a fascinating dialogue that we have attempted to capture below.

In the first panel with the execs of five major carriers, the opening question asked for a one minute overview of their healthplan’s area of focus in addressing the employers’ challenges. The responses were consistent amongst the leaders – the focus is on the individual consumer and value-based contracting. When we evolved the discussion into quality criteria and outcomes to identify high performing physicians, the leaders acknowledged that defining quality and outcomes is a challenging endeavor, and each health plan has their own formula to assess the providers’ performance. One commented that a physician practicing in the morning could be viewed as a top performer by a carrier, while that afternoon, they could be ranked as a poor performer by another, even though the physician was delivering the same process of care for all their patients. They agreed that the employers really needed to weigh in on what was important to them, so there was greater consistency in the scoring logic with the physician community.

The next panel was with the Chief Medical Officers (CMO) from the major systems and a primary care practice. There were a number of relevant learnings from this panel. There was unanimity around the frustration with the variation in the quality metrics being used by commercial carriers and CMS. One physician commented that he had never been asked for input on the quality metrics, and he was ready to engage in that discussion. The physician leaders asked for the employers to outline what was important to them, so there could be a common set of standards for the commercial market – a consistent request from the leaders of both healthcare stakeholders.

Two of the CMOs were primary care physicians, and they both acknowledged that we have not given enough attention to the resource that has the greatest opportunity to lower employers’ costs – the family doctor. The primary care physicians can build trusting relationships with employees; they can help avoid the unnecessary services being provided; and they can help educate and channel the patients into the appropriate specialist, when they are equipped with quality and cost information.

The CMO from the largest health system acknowledged that there was 30% variation (aka waste) in the way care was being delivered within the community, and there was opportunity to improve the results. If we know there is variation in care even with performance-based contracts in place, what is the catalyst to get serious on consistency? Are there any other services that you purchase with a 30% variance? Would you continue spending money for that service knowing there is wasted spend?

After the event, there was a conversation with an employer, and we discussed the employers’ opportunity to help shape and to define the quality metrics. This employer stated that he did not have experience or knowledge on how to establish criteria, and he was surprised to hear that the healthplans were looking for his guidance since he thought it was their role. When the discussion moved to their overall business, he acknowledged that their internal business units established the quality criteria in assessing their vendors’ performance.

So how do we move beyond the billboards and the marketing campaigns to understand the healthcare suppliers’ performance? Who has the greatest opportunity to drive change in a free market system? We believe the one paying the bill has the ability to drive a more consistent outcome for high quality, cost effective healthcare. Let’s recognize and reward the physicians who are delivering a six sigma approach to healthcare, so the other suppliers will be motivated to change. It’s time for employer-driven healthcare.


Tom Emerick and David Toomey are founders of Thera Advisors. Their focus is to help employers maximize their role as the purchaser of healthcare services in working with suppliers to impact their population’s health and to lower costs.

Are your health cost savings an illusion?

In this article by Tom Emerick and David Toomey, founders of Thera Advisors, we describe the phenomenon of healthcare illusions.

The New England Journal of Medicine carried an excellent article by David Casarette, MD, on the topic of health care illusions and medical appropriateness. Click here to read the full article. Hats off to Bob Stauble for a heads up on this article.

Casarette observes that humans have a tendency to see success in what they do, even if in truth there is none. Casarette writes, “Psychologists call this phenomenon, which is based on our tendency to infer causality where none exists, the ‘illusion of control’.” This illusion applies in all walks of life, especially in politics and parenting, and it includes medical care as well.

In medical care, the phenomenon has been referred to as “therapeutic illusion“, and it impacts both doctors and patients. Undoubtedly, therapeutic illusion is why placebos can so effective.

In one clinical study, faux surgery worked as well or better than an actual surgery for the treatment of specific conditions. If patients perceive they need surgery or a procedure, e.g. for knee pain, even though it may not be medically appropriate, some will search for a surgeon who can validate the need and perform the surgery.

Casarette further writes, “…physicians also overestimate the benefits of everything from interventions for back pain to cancer chemotherapy.” Of course, that’s simply a form of confirmation bias.

Casarette’s article is most interesting to us. Why? We’ve often felt that doctors who perform unnecessary surgeries have ethical problems. The reality is that it may be a little more complicated than that. When you throw in confirmation bias, the surgery decisions may have a subconscious influence.

The attention today is on value-based contracting and data analysis. A group of 20 national employers have come together to share data, so they can assess the healthcare supply chain. As noted in our last blog post, analyzing big data is complex, especially since claims data are just a collection of medical bills. How are employers assessing medical appropriateness? What reports can be generated to assess a need for care?

As we know, price X volume = costs. Medicare generally has more aggressive discounted prices than commercial plans, but there is still significant cost variation – in 2014, one states’ Medicare costs was $6,631 per capita while another was $10,610. A big driver – variation in volumes.

Toomey had an interesting conversation with the Chief Medical Officer (CMO) of a major health system. He relayed that his wife was having pain in her hand, so they scheduled an appointment with one of their system’s highly recommended specialists. The specialist looked at the wife’s hand, and after a few minutes, he stated that she needed surgery. Since the specialist did not know he was a physician, the CMO questioned how the specialist could arrive at a diagnosis from just looking at a hand, and the response was, “based on his years of experience.” They got a second opinion and opted for the recommended therapy instead, which solved her issue.

Healthcare involves people – patients, physicians, and other providers, and the human element makes it even more complex. So how do those involved in healthcare address the variation in medical care that is driving up costs? We are biased – we believe the employers are the catalyst to drive change for increased consistency by working collaboratively with suppliers (think six sigma). It’s time for change.


Tom Emerick and David Toomey are founders of Thera Advisors. Their focus is to help employers maximize their role as the purchaser of healthcare services in working with suppliers to impact their population’s health and to lower costs.






Flogging the data until it confesses

Did you ever hear the old joke where the boss says floggings will continue until morale improves? Flogging the data until results improve…or the data confesses…is not uncommon. Too bad.

In my career I’ve worked with companies with over 100k covered lives the claim costs of which could swing widely, from year to year, all because of a few extra transplants, big neonatal ICU cases, ventricular assist cases, etc.

Here are just a few of the huge single case claims I’ve observed in recent years:

  • $3.5M    cancer case
  • $6M       neonatal intensive care
  • $8M       hemophilia case
  • $1.4M    organ transplant
  • $1M       ventricular assist device

This is not a complaint. After all this is what health insurance should be about, huge unbudgetable health events.

All plans have one organ transplant every 10k life years or so, most of which will cost about $1M over 6 years. A plan with 1k covered lives will have such an expense on the average of every 10 years. Of course the company may have none for 15 years and two in the 16th year. The same goes for $500k+ ventricular assist device surgeries.

Looking at claims data for small groups is perilous, sometimes for large groups as well. Because of the high cost and relative infrequency of so-called “shock” claims, those over $250k, you need about 100k life years for the claims data to be even approximately 75% credible. When a group with 5k lives said they did something that cut the claims costs, they can’t really know if the change made a significant difference for a couple of decades.

Here is an example. A smallish group, about 3k covered lives asked me to help calculate how much their wellness plan was saving. They had all employees listed in three tiers: active wellness participants, moderate participants, and non-participants. I warned them they didn’t have enough data to be credible but they proceeded anyway. They expected active users would have the lowest claim costs and so on. When the data were reviewed, there was perfect reverse correlation. Active wellness users had the highest claim costs, moderate users had the next highest costs, and non-participants the lowest. In their final report, which I had nothing to do with preparing, and from which I had recused myself, they subtracted out big claims by the active and moderate users to get the results they wanted. In short they flogged the data until it confessed. Alas.

One large company claimed huge reductions in plan costs by adding a wellness program. It turns out during that period in question they also implemented an “early out” incentive. Upon examination, the early out program resulted in a big reduction in the number of older employees which more than accounted for the reduction in claims costs.

Here is yet another example. I was in a conference a few years ago in which a presenter from a small company, about 1k covered lives, claimed to have kept their health costs flat for five years through wellness initiatives. While he got a big ovation, his numbers just didn’t add up. I asked him a few questions after his speech about what other changes he made during that period. He said they lowered their “stop loss” limit from $100k to $50K a few of years earlier. Then he admitted to excluding his stop loss premium costs, which were skyrocketing, from his presentation. With a little bit of mental arithmetic I added that back in, which revealed his company’s total health costs were going up at the same rate as everyone else’s, perhaps even a little higher. Hmmm. I don’t think he deliberately mislead the audience. He just didn’t know better. When you hear boasts of big short-term impacts of wellness programs, beware of confirmation bias.

When a company claims they implemented something that caused their health plan costs to drop 15% or so, ask a few questions:

  1. The big question is did the company adjust for plan design changes, such as raising deductibles and copays, that merely shifted costs to employees?
  2. Did the changes really save claim dollars?
  3. Did they factor in stop loss premiums?
  4. How many life years of data did they observe?
  5.  Did the company exclude large or “shock” claims? (This is not uncommon, especially among wellness vendors.)
  6. Did it experience any big changes in demographics, such as through implementation of an early retirement program or layoffs that impacted older workers the worst?

When I’ve asked those kinds of questions, I’ve almost never seen a big claim of cost reductions by a small company hold up under scrutiny, and same for some big companies too.

Today flogging the data to get the desired results is all too common. That’s no surprise. They keep catching academics and big pharma doing the same thing. Skepticism is in a good thing.


Tom Emerick

Tom’s latest book, “An Illustrated Guide to Personal Health”, is now available on Amazon.

Limitations of big data

In this article by Tom Emerick and David Toomey, founders of Thera Advisors, we describe good uses of health plan data and discuss the limitations of health plan data.

As you think about claims data, the information is capturing the services provided to a patient by a healthcare provider for preventive care or for the diagnosis or the treatment of a condition. This information can be grouped by different cohorts—those getting preventive exams, those examining categories of care, or those that seeing specific physicians and/or hospitals for conditions. These data, for example, can be grouped by diagnoses, called a diagnosis related group, involving a hospital stay. However, all claims data is just a collection of medical bills. Medical bills do not contain a complete look at the patient, such as important information as a patient’s prognosis. That’s a gap. Thus, it is important to set appropriate expectations on the use of the data.

Number 1 (one of the most important): Avoid the averages
Most claims data sets are not normally distributed, so the averages do not provide relevant information. In most discussions today, employers evaluate the average cost of employees with specific conditions, e.g., diabetes or high blood pressure. This is a flawed approach because spending by employees with various chronic conditions is skewed, thus not really “averageable”. For example, assume 90% of an employee population with diabetes is spending $10,000/year and 10% is spending $250,000/year, the average will be a meaningless $34,000/year. All too often, a wild goose chase ensues, when in fact the focus should be on the $250,000 cohort to understand why they were so much more expensive.

Number 2: Follow the money
A superior use of claims data is to look at distributions of spending. In most plans today, roughly 8% of enrollees are consuming 80% of plan dollars, and these 8% typically change every twelve to eighteen months. (We still run into benefit managers who were unaware of that.) The future belongs to micro-managing these “outliers”, rather than the 92% who spend only 20% of the dollars. If you study those outliers carefully, you will find that only about 7% of their spending possibly would have been preventable, and then only if they faithfully did what their doctors told them to do decades earlier. A cardiologist recently told me that of the patients he has seen with a significant acute blockage, about 25% had no known health risks of any kind…no high blood pressure, cholesterol, diabetes, obesity, no smoking, no genetic predisposition, etc. As such, there is a component of randomness in terms of many who gets blocked arteries. The same holds true for cancer. For the other 75%, their physicians have usually counseled them on the importance of exercise and nutrition and the dangers of tobacco use, but to no avail.

Number 3: Realize the limitations for quality designations
Yet another big error is trying to use claims data to determine the best quality doctors. You better be really, really talented to try that one. Why? We are in an era in which many doctors are making their “quality” and “outcomes” look better by referring their most complex and risky patients to someone else. (Much has been written about this.) On the other hand, there are highly effective doctors, who take responsibility for their riskiest patients, but as a consequence score poorly on so-called “quality measures”. The real travesty is that the low scoring doctors ironically may be the most cost-effective and provide the best care.

Number 4: Misdiagnoses are a real cost driver
Another huge shortcoming of claims data is one that Readers of Cracking Health Costs know about. Namely, a large number of patients with complex health problems are simply misdiagnosed – today, that’s about 20% of the outliers in benefit plans accounting for 18% of claim dollars. Thus, you cannot rely on diagnoses in claims data, and you cannot tell who is getting diagnoses right or wrong – this takes detective work beyond claims data. Click here for a good article by the Mayo Clinic on rates of misdiagnoses. We have sent hundreds of people to the Mayo Clinic for second opinions and can verify by personal experience the truth in that article…same for other clinics we have used for employers. Our first rule in selecting a Center of Excellence is its success in correctly diagnosing patients with complex health problems. Huge amounts of claim dollars are spent on treatments or surgeries that are either completely erroneous or clearly suboptimal. An executive at a Fortune 100 company once said to me that the biggest quality failure in healthcare is to misdiagnose a patient…everything that follows harms the patient.

Number 5: Coding can impact the data analysis
During a data analysis for a very larger employer, over 250k covered lives, they told me they had not paid for a solid organ transplant in a number of years. Based on their size, they should have been paying for about 25 a year. After further detective work, we discovered their consultant was using a DRG grouper that coded all transplants as ventilator cases…who knows why…but a huge error. The benefit team had no idea they were really paying for about 25 a year at an average cost over five years of about $1,500,000 each.

Number 6: Reversion to the mean                                                              One thing we’ve learned from years of claims analysis of big companies’ benefit programs is that if you have enough life years of data, it all looks about the same, i.e., it reverts to the mean. If the workforce is comparatively older, they will have somewhat more high cost claims.


Tom Emerick and David Toomey are founders of Thera Advisors. Their focus is to help employers maximize their role as the purchaser of healthcare services in working with suppliers to impact their population’s health and to lower costs.





Why Healthcare Costs Rise Faster Than General Inflation Part 6

By David Toomey and Tom Emerick


In most healthcare discussions today, “the exchange” is usually referenced as a solution to address the employers’ health and cost challenges. The exchange model is now being offered by carriers, by consulting firms, and by independent companies. Per Accenture, the enrollment in private exchanges have exceeded 6M in 2015, and it’s projected to be at 40M by 2018.

Since the age of consumerism began back in the early ‘90’s, the theory has been that if we can transform employees into consumers of healthcare services, the free market will drive out the price variation amongst the providers as patients question the cost of services. As more employers have increased deductibles, many are still waiting for their employees to become a healthcare consumer. The reality is that healthcare is complex, so individuals are challenged with deciphering the medical terminology and obtaining the actual price for a specific service, especially when majority of people access the healthcare system infrequently. So is the exchange the answer for consumerism to take hold?

At a recent exchange conference, there were national experts discussing the impact of the exchanges. After hearing the various messaging and the statistics from the presenters, it became clearer that the value of the private exchange is basically an administrative platform designed to give individuals plan and program choices, so they can make the right decisions based on their needs. Now the concept of giving employees’ choices and allowing them to make a personalized decision is not new–cafeteria plans have been around for 25+ years.

Cafeteria plans in the 90’s had some big problems. The main problem was serious adverse selection between the plans. When you have big bills planned, you switch to the “richest” plan, and then switch to a low cost option later. When this happens, the “sponsor” gets shorted on payroll deductions as well the spread of the costs amongst those not using services. It will be interesting to see if the exchanges have a better design these days.

When questions were posed to the exchange experts on whether the data was showing an impact to the healthcare decisions and to the health of the population, the consistent response—we’re not sure. Now cafeteria plans/exchanges can serve a purpose when an employer is interested in giving a diverse employee population choices. It’s important not to get caught up in the marketing that an administrative platform is going to solve the healthcare challenges confronting employers today. As we discussed in Part 5 of this series, the marketing around value-based contracts/ACOs has also positioned that concept as a solution, when in reality, performance contracts with provider have also been around for 25+ years.

Employers continue to be faced with about 8% of their population consuming 80% of the total spend, and there is a new 8% every 12-18 months. Is it time to get back to the basics? Should the focus be on finding the right physicians committed to delivering evidence-based healthcare, and then ensuring that patients are accessing care from these providers? When providers see that employers are truly committed to supply chain management, we can expect the process of care to change significantly, and there will be a commitment to removing the non-value added waste from the system. As with many other industries, the ultimate purchaser has the ultimate power by working with the interested suppliers to improve the process and to impact quality and costs.


Tom Emerick and David Toomey are founders of Thera Advisors. Their focus is to help employers maximize their role as the purchaser of healthcare services in working with suppliers to impact their population’s health and to lower costs.