Employers who wish to improve the value-proposition of health care for both their employees and themselves must address both the supply and the demand variables in the equation. In the final part of this series on the Healthcare Value Problem, we'll discuss two strategies that purchasers can use to buy more health, not more healthcare: Value-Based Purchasing and Value-Based Insurance Design are essential. A family of four paid an average of $25,826 a year for healthcare in 2016 – a three-fold increase over 2001 when it was $8,414. In Part 1 of this three-part series, I argued that we must do more than simply inventory the seemingly countless number of issues that contribute to the problem: we must carefully distinguish between results and causes. In Part Two, we identified two primary root causes to America's Healthcare Value Problem, each of which exacerbates the other: Surrogate purchasing (e.g., paying for premiums through a third party rather than directly purchasing health care based on overall value). Undifferentiated benefit designs (e.g., providing the same benefit for low-value care as for high-value care). So what can we do this information? Value-Based Purchasing We must replace the surrogate purchasing model by proactively purchasing health care. First, to be clear, insurers and third party administrators play an important role in health care. They perform vital functions that employers do not and should not be expected to perform. But relying on third parties to purchase care without employer involvement causes four major problems: It creates a buyer-seller disconnect. It places the value-proposition for the third party (the surrogate) above the value-proposition for the employer and user. It ignores quality. Historically, both health plans have emphasized discounting price and largely ignored quality – despite the fact that quality is the underlying problem. It promotes the wrong strategies. A prime example: high-deductible health plans. Once in such plans, research has shown that consumers postpone or avoid high-value care as much as they do lower value care. Ultimately, chronic diseases end up costing significantly more. It distorts market incentives. The emphasis on discounts and narrow networks simply creates incentives for providers to consolidate into bigger and bigger systems – not to realize economies of scale, but to better negotiate contracts. Value-Based Insurance Design Employer benefits must be designed to encourage the use of high-value services and discourage the use of lower value services. The National Business Coalition on Health (NBCH) “Value-Based Purchasing Guide” defines value-based purchasing as “a demand-side strategy to measure, report, and reward excellence in health care delivery, taking into consideration access, price, quality, efficiency, and alignment of incentives.” This means employers reward high performing health care providers through transparency and employee reporting. We know that some services – particularly preventative care and primary care – offer high value. And we know that other services – such as those on “Choosing Wisely” either offer limited or no value. Undifferentiated benefit design translates in employees under-utilizing and under-valuing the most beneficial health care services while demanding services that either doesn't help or may actually harm them. The University of Michigan established value-based insurance design “on the principle of lowering or removing financial barriers to essential, high-value clinical services. Through the process, health plans are designed to align patients’ out-of-pocket costs, such as copayments, with the value of services.” All sorts of health plans have benefitted – clinically and financially – from implementing value-based insurance design, including: Public Employee Health Plans High Deductible Health Plans Medicaid Programs “The theory is that only the surrogates have enough knowledge to control excess care, enough market power to discipline rising prices, and enough vested interest in our health to drive greater safety and quality. But the past 50 years suggests the theory is wrong: the surrogates them-selves create many of the incentives for bad behavior in health care.” David Goldhill, Catastrophic Care: Why Everything We Think We Know About Health Care is Wrong Robert Smith Executive Director, Colorado Business Group on Health
In Part One of this three-part series, I argue that employers must distinguish between results and causes in order to avoid feeling helpless in the face of healthcare's intimidating complexity. Employers – who finance our commercial health market – must get to the root cause. To do this, we must start by conducting a root cause analysis. As described by the American Society for Quality (ASQ), “a root cause is what sets in motion the entire cause-and-effect chain causing the problem(s).” The “cause-and-effect chain” is a useful tool for understanding why health care costs have tripled since 2001. Healthcare's Cause-and-Effect Chains Market-level Effect: Sub-optimal Value Sub-optimal value can be measured in terms of: Inordinate costs and cost trends. Inconsistent clinical quality (e.g., poor outcomes and/or inappropriate services). Cause: Clinical Process Variations Lead to Suboptimal Value High level causes are the most visible drivers of the above outcomes. They largely result from process variations from demonstrated best practices on the part of providers that result in: Under-use of high value services – particularly preventative and primary care. Over-use of some services (e.g., clinically unnecessary and often harmful). Medical errors and avoidable complications Collectively these three high level causes represent quality waste - resources that either made no contribution to the final product or may have actually diminished it. Mid-Level Causes High level causes – e.g., the quality wastes – actually result from other, mid-level drivers. These include: Fee-for-service payment, particularly for “supply-driven” services. Failure to adopt/use nationally recognized measures and standards. Excessive demand due to reducible risk factors and clinically inappropriate patient preferences. Lack of patient compliance with physician care plans and recommendations. Lack of transparency (with regard to both quality and price). Low health literacy levels compromising enrollee engagement. Root Causes Root causes directly drive mid-level causes. Surrogate purchasing (e.g., paying for premiums through a third party but not proactively purchasing health care based on overall value) Undifferentiated benefit designs (e.g., providing the same benefit for low-value care as for high value care) Clearly, by any analysis, the health care conundrum is a complex and complicated one. But that’s not to say it can’t be addressed or that it cannot be mitigated. It can be. But only if we carefully separate results from causes and repeatedly ask “why” – as in “why would an aspirin cost $25 in the hospital” or “why are so many babies born by Cesarean-section?” As Forbes’ Dave Chase recently pointed out in an article titled “Healthcare’s Biggest Lie,” employers are by no means helpless. Employers CAN get significantly better value for their health care dollar – and better outcomes for their enrollees – IF they both proactively purchase healthcare and provide benefits based on value. Simply paying for care and providing undifferentiated benefits will continue to buy more health care, not more health. My next post, “Getting More Health, Not More Health Care,” will outline how. Robert Smith Executive Director, Colorado Business Group on Health
In 2016, an employer-sponsored PPO health plan for an American family of four cost an average of $25,826 – an eye-popping three-fold increase over 2001 when it was $8,414. That is the key finding recently released in the medical index report assembled by Milliman, a global consulting actuary. But it is not the only significant observation Milliman makes. Others include: Although the 4.7% cost increase between 2015 and 2016 was the lowest annual increase of the past 15 years, the number still far exceeds the consumer price index, as well as the median household wage increase. (Note: The “Milliman Medical Index” or MMI measures both employer and enrollee costs) Employees are shouldering a greater proportion of costs. In 2001, employees paid 39% of the premium. They now pick up 43% of the tab. Here’s another way to read those findings: Cost increases are stifling economic development and weighing upon corporate competitiveness while they are cannibalizing employee raises and draining families’ discretionary income. Health care has value-proposition problem. So to what does the Milliman report attribute the ongoing, disproportionate increases? “The ongoing increases are driven by a myriad of factors, including the disconnect between healthcare consumption and financing…. In addition, healthcare costs are continually driven upward by the fee-for-service payment mechanisms, by inefficiencies in the delivery systems, and by our efforts to improve longevity and quality of life through new technologies.” Well, okay. True enough. But if we’re just going to inventory contributing factors, then why overlook the obesity epidemic, the lack of pricing and quality transparency, the lack of patient compliance, the fact that premium increases benefit insurers, and the world’s highest administrative costs? Each plays a role. Simply inventorying a smorgasbord of issues is hardly helpful for an employer who actually wants to do something about it. Instead, we would argue that while some of these factors are causes, many others are, the results of other, largely unseen causes. For the most part, we would argue, the consistent inefficiency and inconsistent effectiveness that characterizes today’s health care reflect symptoms and not causes and that the best way to understand the cause is to conduct a root cause analysis. In part two of a three-part series, I'll apply a root cause analysis to health care’s value problem. Only by doing so can we truly consider, what employers – who finance virtually all commercially provided care – can do. For more information on how you can connect with proactive employers to move the needle on healthcare costs, visit the Colorado Business Group on Health or join us at one of our upcoming events. Robert Smith Executive Director, Colorado Business Group on Health
Dameron, Tom. "If Not Now, When? What Employers Need to Know in Order To Manage Health Costs." Common sense is not always that common in our health care system. We have the best doctors in the world and the best medical technology in the world. Why don’t we have the best health care system in the world? Why is health insurance so expensive? What can employers do about it? Employers can immediately reduce the cost of health insurance by 20% by simply shifting their focus to proven strategies. Stop focusing exclusively on large “PPO” provider networks and pay attention to networks with high performing primary care physicians. Stop focusing on hospital discounts off billed charges and start demanding payments based on a reasonable percentage of Medicare. Stop focusing on historical cost reports and require your insurance carrier or third party administrator (TPA) to deliver predictive and actionable population health analytics. Care Management Chronic care conditions account for two-thirds of the total health care costs. Employers who want to manage these costs need to drive engagement between employees and their primary care clinicians. People trust their physician/clinician, not the insurance carrier. Relying on the insurance carrier to manage population health is a 30-year-old strategy with mediocre results. Whereas, patient engagement rates are shown to be much higher when employees are driven towards primary care physicians that are “PCHM Recognized” by NCQA. Additionally, when physicians are given authority to manage care, patients benefit from easier access to care because these PCPs have extended office hours and provide same day access to care, and better quality care because they follow evidence-based clinical guidelines. Hospital Costs Hospital unit cost also has a substantial impact on overall health insurance rates. Hospitals mark up prices by more than 450%. In other words, hospitals will charge private payers $4,500 for the same service that Medicare is charged $1,000. Even with a 50% negotiated discount, employers can still end up paying more than twice that of what Medicare analysis determines to be the actual cost. This is substantially higher than necessary given a MedPac report that shows efficiently run hospitals generate a net operating margin from the Medicare reimbursement rate. In other words, there is no justification for hospitals to charge substantially higher rates to employers in order to offset the low payment from Medicare. Meaningful Insights The industry standard for employer client reports and analytics has also not changed during the past 30 years. Analyzing historical medical cost based on type and place of service does not provide actionable recommendations, and simply leads to cost shifting through higher monthly premiums and higher deductibles. How do you know physicians are delivering on their commitment to manage patients with chronic care conditions unless you are receiving population health management reports from your insurance carrier/TPA? Basic questions such as “what % of my employees/family members with diabetes have a blood sugar level (HbA1c) below 7%” are key to holding the physicians accountable. Moving from a “place of service” report to an integrated “wellness and population health” analytics focus is the key to determining meaningful actions necessary to manage the per capita cost. Questions to ask your medical benefits consultant: What % of the network PCPs is NCQH-PCMH Recognized? A high-performance network will have at least half the PCPs in this category with the majority of the remaining PCPs pursuing this designation. What % of the network PCPs are reimbursed based on keeping people healthy? A high-performance network will have a specific value-based reimbursement model in place for PCPs. What’s the hospital reimbursement as a % of Medicare? A high-performance network will have hospitals contracted at 150% of Medicare or less. What population health reporting is provided by the carrier/TPA? A high-performance carrier/TPA can provide biometric results and risk scores by member, chronic care registries, and specific outcomes result by chronic care patient and attributed PCP/clinician. Why spend 20% more for health insurance by continuing with the current 30-year-old status-quo approach? Now is the time for employers to be bold and make a difference. Now is the time for employers to “own” this on behalf of their employees and stop making passive status quo decisions. If not now, when? After graduating with a BSBA in Statistics, Tom went on to become the Director of Actuarial and Underwriting for a local non-profit Blues Plan. He subsequently held executive leadership positions at United Health, Cigna and Aetna. Tom consults with Accountable Care Organizations in his current role as Senior Vice President with Continental Benefits and remains focused on the health care triple aim of better population health, better patient experience, and a better per capita cost. Reach Tom at: firstname.lastname@example.org
With Donna Marshall’s recent retirement after 20 years, it seems appropriate to articulate, reflect on, and perhaps reaffirm, the key concepts that motivate us at CBGH. While healthcare and the economics that shape its delivery can be complex and difficult to understand, the following concepts are really quite simple – and central to our efforts. Healthcare cost containment must begin with quality improvement. Business coalitions began in response to rising healthcare costs. But sophisticated leaders, like Donna, understood that unjustifiably wide variations in resource use and outcomes were and remain the primary drivers of healthcare costs. This foundational precept was reinforced by the 1999 Institute of Medicine report, To Err is Human: Building a Better Health System. The report described extreme levels of “quality waste” resulting from of a “healthcare system at odds with itself.” While some targeted the results of a wasteful system, like high prices, CBGH decided to promote tools and practices for addressing the causes, such as variation in outcomes. This basic concept still serves as our focal point. Quality improvement is a team sport – particularly for purchasers. Just as we know that clinical teamwork is key to improved quality, we also see the need for employers to work collaboratively around quality. With each health system and health plan merger, the individual employer’s voice is diminished. Only employers – as purchasers, have the incentive to address the root quality problems. Instead of shifting risks and costs to employees, employers can force plans and providers to offer a higher value proposition. To do so, they must work together. Health plans are intermediaries, not purchasers. This statement of fact neither criticizes nor denigrates the role that health plans play. Their core functions are essential in our system. But health plans process claims, they are NOT payers. Funding for healthcare does not originate with them. It originates with employers: private employers who must increase prices or cut costs to pay for exorbitant increases and public employers who then must restrict either services or wage increases. Healthcare is a foundational economic development issue. Because employers and their employees bear the inflationary costs of an inefficient system, CBGH considers healthcare to be a basic economic development issue. In compromising the profits and salaries of our domestic companies and the competitiveness of our international companies, and in limiting the discretionary spending of our workers, healthcare hampers our economy. Healthcare waste robs monies from our schools, our roads, our public services and our retirements. We deserve better. Medical errors are now the third leading cause of death in the US. While you CAN get the world’s best care in the US, the problem is you DON’T ALWAYS. Yet we spend two, three, and four times what other countries spend on healthcare. This should not be okay. Our families and our employees deserve better. In the end, it really comes down to that. The opportunity to continue the work of the CBGH – on behalf of our members and their employees – is an honor for all of us at CBGH. While evolving markets and circumstances may change our strategies and tactics, our purpose remains constant: to support employers and work with providers in assuring that enrollees receive the right care at the right time at the right cost. Bob Smith Executive Director/ CBGH
As businessballs.com points out, “Dr. Stephen Covey (1932-2012) remains a hugely influential management guru.” His best-selling book, The Seven Habits of Highly Effective People, has not only been used by millions as “a blueprint for personal development,” but it continues to provide guidance for “any other aspect of human responsibility that you might imagine.” With that thought in mind – e.g., that the seven habits can be widely applied – we thought we would see how those habits might be applied to managing healthcare benefits. Here’s what we came up with: Habit 1: “Be Proactive.” Employers must proactively purchase (instead of just passively pay for) healthcare. If someone else does your shopping, you shouldn’t be surprised if you don’t get what you wanted. Habit 2: “Begin with the end in mind.” What you want to buy is more health, NOT more healthcare. Focus on what you’re trying to achieve over the next 3-4 years: healthier employees. Will what you’re doing get you where you want to be? Habit 3: “Put first things first.” This means identifying and starting with the most significant trends driving your healthcare costs as well as the greatest opportunities to address them. Habit 4: “Think ‘win-win.’” The way to save money is NOT by denying care or even shifting cost, but by making certain people get the “right care at the right time in the right place.” Improving healthcare outcomes will benefit both employee and employer. Habit 5: “Seek first to understand…” Identify and address the causes of your spending, not simply the results (such as high hospital costs). Habit 6: “Synergize.” Plan managers MUST simultaneously address both provider supply (which is often ineffective and inefficient) and employee demand (which is often excessive or preventable). Habit 7: “Sharpen the saw.” Engage both employees and providers in continuous improvement. Employees should have incentives to reduce risk factors and increase compliance. Physicians should be improving outcomes and reducing potentially avoidable complications. Sounds simple, right? But, to quote businessballs.com again, while these concepts are easily understood, they “may be a little more difficult to apply in practice.” and, in fact, “…may entail quite serious changes to thinking and acting.” If you want to discuss how you could incorporate these habits into a multi-year benefit strategic plan, call us. We’ve thought a bit about it and we have data that can help you. Write us at: email@example.com Stephen R. Covey, The 7 Habits of Highly Effective People, published by Free Press, 1990
For many Colorado employers, employee health insurance is among the largest expense line items, often second only to salaries and benefits. Many manufacturers may pay more for healthcare than for their raw materials. Yet the healthcare market fails to deliver-to-deliver consistent value. Here’ why: Quality Varies Widely. Without question, you can get the best care in the world in the US. But you don’t always. Outcomes vary widely both across and within provider organizations depending on the specific service Waste is Pervasive – and Incented. Virtually all studies on healthcare estimate waste at 35-50% or more. An estimated 40% of procedures either don’t help or actually harm patients. Potentially avoidable complications can account for 50% or more of the costs of any given episode. And worst of all, the way health plans have paid providers for decades has encouraged such waste. Increasingly expensive. With variability in quality and clinical waste, it’s no surprise that costs are climbing. Employer premium increases run several times the CPI. Employee premiums are up 24% and deductibles up 67% over 5 years while wage increases are up only 9%. Quality and Pricing is Opaque. Finally, the lack of transparency in healthcare virtually assures that it cannot function like other markets. Whether for planned or emergency procedures, prices typically aren’t published or even known by the providers themselves. These are not, however, symptoms of a "broken" system. As Don Berwick reminded us, "Every system is perfectly designed for exactly the results it is getting." In other words, inefficiency, ineffectiveness, and rapidly rising costs are all the inevitable outcomes of a dysfunctional healthcare market place. These characteristics result from how care is being bought and sold in every market in every state. A quick review of the literature via google reminds us that effective, efficient markets have, among others, the following critical characteristics: Many buyers and sellers.(e.g., lots of competition) Ease of entry into and exit from the market (again, lots of competition) Complete price and quality transparency for consumers (e.g., the assumption of "perfect information) Comparability across products (e.g., common standards and measures so transparency is meaningful) Payment mechanisms that incentivize high quality (e.g., that put sellers at risk for poor quality or bad outcomes) As a recent Commonwealth Fund article, "Making Health Care Markets Work Better: The Role of Regulation," points out, not a single one of these conditions is met in today's healthcare market. And while we agree that Federal and state regulators can have some effect to ensure that some of these conditions are at least partially met, we continue to believe that employers are the key to creating a functional healthcare market place. While employers cannot do much about the consolidation in healthcare that leaves Colorado with only a small number of health plans and providers, employers - numbering literally in the thousands - can and must (if they want better value) act as purchasers to create a competitive marketplace. As the Commonwealth Fund article puts it... "Historically, increased consolidation among providers has been associated with higher prices and lower quality. But the current emphasis on moving from paying for the volume of services to paying for the value they produce may change that dynamic." Exactly. And employers hold the key for changing that dynamic, They have the numbers. They pay the bills - either directly or through their premiums. By acting as purchasers, not simply payers, they can prod the market into improving value. And they can do so by using the best-in-class tools offered by CBGH that address the two parts of the value equation - quality and cost. These tools include: Bridges to Excellence- rewarding physicians who provide exception care for diabetes and cardiac patients. CareChex - assessing and rating hospital quality at the service line level. eValue8- providing a framework of standards to measure and compare health plan performance on critical functions. Leapfrog Group Satety Survey- grading hospitals on their safety. Most of these are tools actually designed by employers for employers. All of them have been adopted by CBGH as providing employers with the best tool kit possible for demanding improvements in the efficiency, effectiveness, and affordability of care. If you want to know more about these tools and how they can fit into your efforts to rein in rising healthcare cost while improving the care your employees receive, give us a call. Together we can change the marketplace. CBGH 2017
The Center for Improving Value in Health Care (CIVHC) just released a new report based on the All Payer Claims Data Base (APCD) highlighting that payments for health care services vary widely across Colorado and emphasizing how "it is impossible to draw general conclusions about variation in prices based solely on geography or volume of services performed. Two examples cited in the report include: While Coloradans living in the Northeast regionof the state paid over $15,000 more than the statewide median for dorsal/lumbar spinal surgery, and over $36,200 and $25,000 more than the statewide average for hip and knee replacement respectively, they were not the highest cost region for colonoscopies or head CTs. The Colorado Springs regionhad the lowest costs for colonoscopies and dorsal/lumber spine fusion, yet they were the highest cost region for abdominal echo exams, further demonstrating that relative prices are not determined solely based on geography. We encourage employers to read the report and to make use of the APCD website, CO Medical Price Compare, with perhaps three thoughts in mind... Of the various components that go into prices for both routine and complex procedures, by far the greatest source of variation are facility fees - particularly those charged by hospitals. (Physician charges actually demonstrate almost insignificant variation.) The kind of variation in facility fees that Bluebook, Castlight, and others have shown vary within markets as well as across An estimated 35-40% of health services - primarily routine procedures - are "stoppable." As time goes by, the APCD continues to increase its value to Colorado purchasers by bringing more and more insights. We fully agree with the conclusion of the report... The move toward greater transparency in the health care industry will allow for further insights into the drivers behind costs. Insights such as these have the potential to inform new ways to improve care, lower costs, and create a healthier Colorado.
Many employers think that the only way to make healthcare more affordable is to cut quality. At CBGH, we hold the opposite view. Decades of research demonstrates that the only way to reduce the growing burden of healthcare costs is to improve quality. Now an excellent article from the Center for Healthcare Quality & Payment Reform on Insurance Affordability reinforces that counter-intuitive idea. “How to Make Health Insurance Affordable” outlines how the cost of healthcare can be reduced effectively while maintaining or actually improving quality care for patients. And while it outlines several realities about the costs of health care, we picked the following six to elaborate on: The Cost of Health Care Can Be Significantly Reduced Without Rationing. Any value-improvement efforts must begin with and focus on quality. A library of studies show that many “low value” services are grossly over-utilized, many “high-value”services are woefully underutilized, and others are plagued with errors. Addressing these three issues improves care and reduces costs. Current Payment Systems Prevent Healthcare Providers From Delivering Lower Cost Care. Fee for service payments drive the waste for over-priced “low-value” services discussed above. But we don’t incentivize high value services, or superior health outcomes and employers have not demanded alternatives. For the most part, under current agreements, providers can actually lose money by improving quality. Alternative Payment Models (APMs) Are Needed to Solve These Problems. Most employers understand that what’s profitable gets done and what’s not doesn’t. Healthcare economics isn’t rocket science. If you overpay for some services you’re going to get overuse. If you underpay other services – like primary care – and you get underuse. Ignore quality and you simply get high volume instead of value. Accountable Care Organizations Don’t Solve the Problems with Current Payment Systems. This is almost a corollary to #3. Employers should worry about payment models, not delivery models. Fix the payment incentives and the providers will fix the delivery system. They’re pretty smart folks. Physicians That Have Participated in Well-Designed APMs Have Shown They Can Significantly Reduce Costs. Speaking of smart folks, we’re strong advocates of employers sitting down with their local physicians to discuss what it takes to change the trajectory of care. In the end, physicians are the engineers of high quality care and will respond to employer needs. Private Health Plans Need to Move More Rapidly to Create True Alternative Payment Models. Today’s healthcare market – generally driven by commercial payers - simply does not reward affordability. If it did, you can bet that US insurers and providers could deliver it. Since employers, not health plans, are the true “payers” for the majority of care, employers need to demand changes in how their plans pay providers. Few employers in Colorado contract directly with providers but, instead, rely on health plans – either as the insurer or as the administrator – as surrogate purchasers. That model can work but only if they pay attention to these six realities.
Read the Yampa Valley Health latest report on Yampa Valley Medical Center! http://www.steamboattoday.com/news/2016/nov/06/health-briefs-yvmc-grade-improves-c-new-report/