Healthcare: Balancing Quality With Cost

As lawmakers continue to debate the future of the Affordable Care Act, company leaders struggle to rein in the rising costs associated with maintaining employee health. “I don’t know a lot about the healthcare space as an industry, but I do know that it is the second-biggest line item after payroll for our consulting firm of a little more than 100 people,” Dax Cross, co-founder and CEO of Atlanta-based Revenue Analytics, told fellow attendees at a roundtable sponsored by Hospital for Special Surgery (HSS), a top-ranked New York hospital for orthopedics and rheumatology.

Those costs are expected to continue to climb. According to the most recent survey released by the National Business Group on Health, large employers project that the average cost of benefits will rise 5 percent in 2018—representing the fifth consecutive year of increases—reaching an average of $14,156 per employee, with employers paying roughly 70 percent. Employee health issues also impact bottom lines in indirect ways, in the form of absenteeism and “presenteeism.”

“Presenteeism is when workers come to work, but can’t work at full capacity because they have some kind of health problem,” explained Catherine MacLean, chief value medical officer for HSS. As a result, productivity plummets. In fact, for some companies, presenteeism is more of a drain on the bottom line than healthcare costs.

“We’re never going to get to a real value equation unless we start to think about both the quality and the cost involved.”

Given the uncertainty around healthcare legislation, business leaders will have to address this for themselves by looking for innovative ways to lower medical costs, increase productivity and keep their employees healthy as well as happy. One way to think about that is to approach it from a value perspective—getting the highest quality of care for the lowest price.

“Many healthcare providers don’t like the concept of ‘value’ because they see it as code for ‘cheap’,” said MacLean. “But it’s really about not overspending on procedures and medication that aren’t needed and increasing the quality of care so that correct diagnoses are made the first time.” When the quality is low—resulting in misdiagnoses and delayed treatment—costs soar. “But if we can treat people in a timely fashion, make the right diagnosis the first time, people can get better sooner and then they can get back to work sooner,” MacLean noted. “We’re never really going to get to a real value equation unless we really start to think about both the quality and the cost involved.”

Roger Shedlin, CEO of White Plains, New York-based OrthoNet, noted that the U.S. is spending more than other countries, but with less to show for it. For example, the UK spends roughly 9–10 percent of GDP on healthcare, while the U.S. spends 18 percent. “Yet, when you look at the relative value, by many measures, of health status and health outcomes internationally, I don’t think we’re doing twice as well as Britain.”

One method employers have used to find value is known as reference-based pricing, which essentially limits what employees can spend on procedures, with the goal of inducing them to find the best bang for the buck. However, this model can be taken to an extreme. “CALpers did a program where they basically laid out a specific price that they would pay for procedures and said, ‘You can go anywhere you want, but this is all we’re paying for’,” says MacLean.” That hasn’t been wildly popular with employees, and no one has really followed suit.”

However, a relatively new version, called focused reference-based pricing, or FACT, works to cap hospital and outpatient facility charges based on average costs primarily tracked by Medicare. The costs are negotiated with the medical facility upfront, before they are incurred. “We’re just now hearing about this from our providers,” said Chuck Ludmer, principal and chief marketing and practice development officer for CohnReznick.

Creating a Culture of Wellness
Of course, the problem won’t be solved with a one-prong approach. “There are certain things we can control, and we would, of course, like to see medical costs going down,” said Farooq Kathwari, CEO of Ethan Allen Interiors. “But that is not all under our control. What we have to do is create a culture of wellness.” By intervening before employees get sick, companies can do a lot to lower their ultimate medical expenses.

“If we look at the determinants of health, what we do in the healthcare system really only accounts for about 40 percent of health,” explained MacLean. “Most of the determinants are things outside of the healthcare system—[such as] lifestyle. There’s a lot that [CEOs] can do with workplace wellness programs.

There’s a lot that you can do as employers, and there’s a lot we can do as a society. We spend a lot of money on healthcare but not on health and wellness.”