Why Wait for Healthcare Reform?

Finding the best healthcare plan for your company is no easy feat, but there are ways to tailor a plan to your needs, as well as pitfalls to avoid in navigating the healthcare marketplace.

March 5 2012 by Ralph de la Torre


The Steward System: Capitated Care

Five years ago, cardiac surgeon Ralph de la Torre gave up his surgical scrubs and turned his talents to saving a very different kind of patient—a group of Boston hospitals poised for bankruptcy. A former chief of cardiac surgery at Harvard University’s Beth Israel Deaconess Medical Center, de la Torre steered the Caritas Christi network—now known as Steward Health Care—from a $25 million loss to operating profits of $40 million in 2010.

Behind the effort was a fundamental shift away from the traditional fee-for-service model of healthcare to a managed care system that reduced healthcare costs by changing the way providers are paid. Such models have proven successful at Steward and a handful of other healthcare systems but have not been widely adopted by the healthcare industry. Given that it will be some time before companies can expect their widespread use to measurably reduce healthcare plan costs, Chief Executive asked Ralph de la Torre to offer an insider’s guidance on ways to bring down their ever-spiraling corporate healthcare plan costs in check.

by Ralph de la Torre, M.D. CEO, Steward Health Care System

Any large employer has the ability to influence many details in a health benefits package. We no longer live in a world where an insurer comes to your company, presents a plan and tolerates your minor tweaks to the deductible or the co-pay.

First of all, you should be talking with more than one insurer and considering competing bids. Never order the soup du jour. Scrutinize each offering and make sure you understand the individual components. Small business owners, who pay more than 70 percent of the premiums themselves and typically work with insurance brokers, have to push back along exactly the same lines.

Once you have chosen an insurance partner, press the company to customize the plan so it fits your needs. Why, for example, are you paying for a no-smoking program if nobody in your company smokes? Next, you need a guarantee that the insurer will work with you to understand how your employees actually use health services. The insurer should help you monitor utilization and actively shape it. The right questions are: What is the price per unit of care? What’s driving that cost? How much care is actually consumed? You’ll want to know which pharmacies are participating, whether the formularies promote generic options, which specialists are under contract and where the procedures are performed.

The pattern, intensity and location of care have an immense impact on cost. Doctors may routinely request CAT scans when patients have headaches—and they may be funneling patients to hospitals when the scans could be performed just as well, at lower cost, in a physician’s office. The insurer has influence over these choices. It’s your role to request detail. Deconstruct the black box.

Your mission is to keep employees healthy, while receiving superior medical care at reduced costs. To help achieve this goal, you should ask insurers if they are able to make their reimbursements contingent on quality. Suppose, for example, the insurer typically pays $1,000 for a standard test or medical procedure. Could they instead offer $950, with a clause that provides an additional $100 if quality standards are met? The insurer may have to swallow that cost for a period of time, as the hospital strives for higher standards. But you’ll see dramatic cost savings— plus improvements in employee health—if the quality boost means fewer hospital re-admissions from infections or other complications.

The Wellness Riddle

The goal of corporate wellness programs is to keep people healthy and, as a result, to lower healthcare costs. In an ideological sense, nothing is more important than preventive care. But from a business standpoint, wellness efforts fall on a spectrum. At one end, you are keeping a 40-year-old person trim and free of diabetes. Further down the spectrum, you’re helping a diabetic person stave off chronic heart disease. At the far end, you’re keeping a patient with diabetes-related congestive heart failure out of the hospital.

“Small business owners, who pay more than 70 percent of premiums themselves and typically work with insurance brokers, have to push back.”

From the position of the employer or the payer, you get the most bang for your buck by intervening early and preventing the advent of diabetes. The problem is that at some point, you are double-paying: You’re investing in the current health of employees in order to hold down costs that are 15 or 20 years down the road and at the same time, you’re paying to treat an employee with a chronic illness because nobody made a smarter investment in his or her health 15 years ago.

This dilemma calls for some unconventional business thinking. It asks society to make a down payment that may pinch a little right now, so that our children won’t be even worse off 15 or 20 years in the future.

Making the Most of Your Choices

Finding the best healthcare plan for your company is no easy feat, but there are ways to tailor a plan to your needs, as well as pitfalls to avoid in navigating the healthcare marketplace. Following the do’s and don’ts below can help you raise the quality of care your employees receive while also lowering costs.

The Do’s:

  • Analyze the details in the plan or delegate to somebody who will. You may uncover features you don’t want to pay for, such as access to expensive teaching hospitals in a neighboring city for routine care.
  • Request the insurer’s help in monitoring your employees’ use of health services. Utilization is one of the primary drivers of total medical expenses, but there’s no way to grasp what you need without scrutinizing what you consume.
  • Seek the insurer’s aid in analyzing per-unit costs of healthcare to find out what is behind the high premiums you’re paying. It could be tests or procedures doctors in your plan are promoting that don’t improve health but do bring in revenues for providers.
  • See if the insurer offers incentives for good behavior. If there are a lot of smokers at the company, see if the payer will experiment with higher premiums for those who indulge or discounts for non-smokers or for those who quit.
  • Ask if the insurer has a “capitated” plan (see “The Steward System: Capitated Care”). This means doctors in a narrow provider network are paid a fixed annual amount to manage each patient’s health, and the medical team retains a portion of whatever remains at the end of the year. If they go over budget, they must return money to the insurer. The employee enjoys lower premiums when staying in network. Not all capitated plans are full-risk, population-based payments. As a matter of fact, most are not. Understand the differences.
  • If capitated plans don’t exist in your area, see if there are other incentives to persuade employees to use local, lower-cost medical facilities—as long as there are no gaps in quality.
  • Ask if any offerings cover sustained consultations with doctors or nurses for employees with chronic illnesses. The extra attention can save you money by encouraging lifestyle or behavior modification to keep the ill employee out of the hospital.

The Don’ts

  • Never automatically renew a contract with your current insurer. Meet with at least two different companies and compare details and costs of each plan.
  • Never take the untailored “soup du jour” offering. Insurers expect to customize plans for clients who take the time to study the details and analyze their own needs.
  • Don’t pay for features that aren’t relevant to your situation. If there are no smokers in your company, why should you pay for a no-smoking program?
  • Don’t go with a capitated insurance plan (see sidebar) unless it contains so-called quality overrides. These provisions reward doctors who actively keep patients healthy by following quality standards. The goal is to discourage doctors in capitated plans from reducing the total spend cost by withholding care.

Lessons from Massachusetts

Massachusetts provides coverage to approximately 98 percent of residents, including 100 percent of children. The trouble is, Massachusetts is 15 percent above the national average in health expenditures, and annual increases in the state far outstrip increases in other parts of the country.

Local culture plays a role in those figures. Academic research centers, teaching hospitals and biotech companies are iconic fixtures in Massachusetts, probably inspiring higher per capita consumption of health services. However, it’s also true that when you expand access to medical care, you expand costs.

But I would assert that all Americans have a right to healthcare. This is simply axiomatic. Once we accept it, the whole discussion becomes an exercise in public finance. The next leg of healthcare reform has to be understanding and tackling the core contributors to cost.

That’s what a community-based approach is designed to achieve. The policies in Massachusetts created a burning platform for change. But the lessons we’ve learned operating in Massachusetts are broadly applicable. And none of them is contingent on how—or whether—the Affordable Care Act is implemented nationally.