Limited Time Offer: Major Employers Seek Partners to Fix Health Care
By: Amy Albo | Aug 12, 2014 9:30 AM
It’s not everyday that the Walt Disney Corporation courts business partners. But their classified ad today might read something like this:
Help Wanted: Largest media conglomerate in the world with annual revenues of $43 billion seeks health care partners to reduce $1 billion spending on health benefits and improve health and happiness of 190,000 employees worldwide. Qualifications: Customer-service oriented, coordinated, collaborative and willing to move quickly. Health plans need not apply.
That’s the classified ad that Barbara Wachsman, a senior executive of employee benefits at Disney, sketched for attendees of the American Hospital Association’s Leadership Summit. As a major employer (and purchaser of health care) Wachsman, joined on a panel by representatives from Walmart and the California Public Employees’ Retirement System (CalPERS), made two things clear: We’re looking to partner with the health industry in a new way, but we’re not going to wait around much longer. We’re moving forward with or without you.
Why are employers becoming more aggressive in the health care arena? “Because we needed this yesterday,” said Wachsman, who noted that health care spending is growing at three times the rate of inflation with no correlation to the quality of care that employees are receiving. “That’s absolutely unacceptable.”
If Disney needed more value in health care yesterday, it certainly needs it by 2018 when a 40 percent excise tax, known as the “Cadillac” tax, will penalize those employers that pay more than $10,200 for an individual employee or $27,500 for family health coverage. Disney is not going to pay the Cadillac tax, Wachsman says matter-of-factly. They’re also not going to avoid the tax by shifting the cost to employees (think $5,000 deductibles). They need to offer competitive and affordable health benefits in order to satisfy employees who range from a housekeeper in Orlando, to the increasing number of senior citizens working in theme parks, to the highly sought-after digital creative types to . . . well, Johny Depp. “It’s so important for us to have satisfied employees,” said Wachsman.
Trusted Advisors and Narrow Networks
What’s the solution? “We are betting the farm on the physician relationship with our employers,” says Wachsman. “We want every employee to choose a physician and then we want the physician to be the one who tells you not to smoke. Not Disney. Not Cigna,” says Wachsman. She sees the role of the physician as the “trusted advisor” who can get employees to call before they’re sick. “I want a primary care office that answers the phone, ‘Good morning. Thanks for calling. When can I see you today?’” she says. If anyone knows how to please the customer, it’s Disney. In fact, Wachsman said the company would be willing to embed a Disney health coach into a medical practice to make that happen. And they’re willing to pay for good outcomes. “If you can create that kind of network, we will do whatever it takes to get employees to go there,” says Wachsman. “And then we’ll hold the physicians accountable.”
“Narrow” has long been considered a dirty word when put in front of “network.” But these three executives agreed that giving employees wide open, unfettered access to choose any physician or health system is not a setup for excellent care. The word “network” is in fact a misnomer, says Wachsman. “Network implies connectivity,” says Wachsman. “What we give to our employees is a list—a thousand-page list of providers.”
“I’m a huge believer in narrow networks,” says Wachsman. Her challenge is convincing the 10,000 Disney employees whose care will be disrupted when the company narrows its provider list in Florida. “We need to communicate to employees that a narrower group ensures that providers are high value, high performing, high efficiency.”
Cheaper, Faster Health Care: The Walmart Way
Walmart is also joining forces with health providers, contracting with them directly to handle certain medical procedures and using their sheer size to wrangle discounts. The mega-retailer, which has more than 1 million covered employees worldwide, broke new trail by creating “Centers of Excellence” for spine and heart surgery at prestigious, high-value systems such as Cleveland Clinic and Mayo Clinic. They’ve contracted directly with the systems and have created bundled payments for procedures they identified as having the highest variability. Employees can get a hip or joint replacement for free at centers. But it’s not just about cost. It’s about appropriateness of care and accuracy of diagnosis, said Sally Wellborn, senior vice president of benefits at Walmart. ‘We don’t want our employees having unnecessary surgery.”
In an unusual twist, it’s a discount retailer that has become the catalyst to creating better pathways for spine and heart surgery. Wellborn says that Virginia Mason is now talking to Cleveland Clinic about best practices and sharing methodologies.
But Wellborn admits that they’ve still got a long way to go. “Patients are looking for convenience, low cost and quality care,” she says. To address those demands, Walmart is creating primary care clinics in some of their stores, where a visit costs around $40 for anyone and $4 for covered employees and their dependents. But there’s still plenty to figure out, like how to refer out to specialists. “Until the whole system changes we’re just picking at a scab,” says Wellborn. “We’re not at Nirvana. More like two steps from hell.”
Reference Pricing as a Waypoint Not A Destination
Ann Boynton, deputy executive officer for benefit programs policy and planning at CalPERS, offered a different purchasing perspective. CalPERS buys $7 billion worth of health care for 1.7 million public employees and their families. They spend $27 million daily on medical care. And as stewards of taxpayer dollars, Boynton takes her role in creating more value in health care seriously. Her philosophy: “Everyone in California needs to benefit from ways that we change marketplace.”
To that end, CalPERS tapped into its claims database that goes back 12 years and saw that single joint replacements ranged from $15,000 to $100,000 for the same procedure. “The price was just hospital whim,” said Boynton. CalPERS created a reference price —$30,000— and then put the patient on hook for spending anything over that. It forced patients to be cost-conscious, shop around and negotiate with hospitals. To date, Boynton doesn’t know of any hospital that has billed the patient for the balance.
Setting a reference price did create more price equity and made patients and providers more cost conscious. But Boynton doesn’t see it as a panacea. First of all, there are a limited number of procedures that are as “discrete and chunkable” as joint surgery. Secondly, having patients shop around based on price doesn’t incentivize coordinated care. “If you’re sending a patient to one place for cataract [and] one place for joint replacement, there’s no coordination with the primary care provider,” she says. She also worries that it encourages the wrong kind of market behavior and creates a whack-a-mole environment, because prices go down in one place and up in another to compensate.
Redefining Consumer Engagement and Wellness Programs
“Consumer engagement focused on price strategy only is a complete boondoggle,” says Boynton, and contrary to the value proposition in health care. Boynton feels it’s the obligation of every delivery system —providers and purchasers — to make it work for the consumer. “The average consumer cannot do it themselves.”
Wellborn agrees: “We have used consumer engagement a little bit as a blunt instrument to get to a broader conversation,” says Wellborn, who notes that it needs to become a mutual dialogue. “We will be rethinking what consumer engagement means and try to disassociate it with personal responsibility and financial involvement.”
Just as employers are redefining “consumer engagement,” they are also reconsidering the effectiveness of wellness programs. Wachsman said she used to be “very bullish” on wellness programs but now is more focused on developing an enhanced employee-physician relationship. For Boynton, focusing on employer-based wellness programs leaves out half of its 1.7 million members who are dependents.
Hopes for the Future
The theme that resonated throughout this panel and the entire Summit is that when it comes to transforming our health care system, the sense of urgency felt by the people providing care needs to match that of the people buying and receiving care. “When the average family spends a third of its income on health care, we have hit the wall of affordability in this country,” said panel moderator and health economist Ian Morrison.
Morrison ended the panel by asking the three executives: What is your hope for the next 5 years?
For Wellborn: That we create integrated systems.
For Boynton: The death of fee-for-service system would be great for me as long as we’ve got the right metrics for quality outcomes.
For Wachsman: A happier, healthier workforce.
About the author:
Amy Albo is a Director of Special Initiatives and Projects at University of Utah Health Sciences.