Look to Nontraditional Ways to Save on Health Benefit Costs

by Chris Van Buren | Sep 04, 2018

The recently announced collaboration on health care between Amazon, JPMorgan Chase & Co., and Berkshire Hathaway Inc. seemingly has grand ambitions, but it has been short on details. There’s no reason to doubt that these business giants could significantly disrupt an industry in dire need of disruption, but how they’ll go about it is a mystery to us on the outside, and very well may be a mystery to them too. However, there is one thing of which I’m sure: As they dig in, they will quickly find that there are fixes already working at highly innovative employers, both small and large.

Additionally, there is growing discussion that the way health benefit dollars have been managed could be a breach of fiduciary duty under the Employee Retirement Income Security Act of 1974 (ERISA), which governs most self-insured health plans. ERISA regulates both health and retirement plans, and requires plan trustees to prudently use plan money for the benefit of plan beneficiaries – the employees. In general, employers have gotten much better with retirement benefit plans, but they lag behind with health benefit plans.

Here’s another incentive to fix that: health care spending is likely one of the last major buckets of operational expenses that most businesses haven’t already intensely optimized – and it’s perhaps the third or fourth largest spend at many companies! Too often, scrutiny has solely been on negotiating insurance rates, not on the prices being paid for the services the employees receive and the quality of health care provided. The health care supply chain needs to be managed. It can be done, and is being done – and not just by megacompanies.

There are proven ways to know and control the actual cost of the things you’re paying for through your health plan. But making it happen requires a shift in mind-set from simply negotiating health insurance rates to managing the underlying costs. Three specific areas produce the greatest results: Attacking the pricing failure of expensive hospital procedures, detecting fraud and waste, and battling the pharmaceutical shell game. In addition, concierge services for employees and a greater emphasis on preventive care deliver a much greater employee experience and lower costs.

Don’t worry, you don’t have to do this on your own. A new industry of service providers is popping up to help employers of all sizes, even small businesses.

Take fraud and waste as an example. Many people assume that traditional carriers check hospital bills for mistakes, but they would be shocked to see what gets automatically approved. Many carriers pride themselves on how fast they process claims, but that means they also process incorrect claims faster – spending our money faster. Simply having hospital bills reviewed and audited can save a plan 3 percent to 8 percent.

Another great way to drive down costs while making employees happier is to offer a medical concierge to help employees access the highest quality providers based on quality metrics. What might surprise people is that high-quality health care providers are often the lowest cost in the entire health care process. And many employers are incentivizing employees by waiving all out-of-pocket costs when members choose providers that are a combination of high quality and low cost. In this scenario, three major things improve: cost to the employer’s plan, the employees’ out-of-pocket cost, and employee satisfaction.

Prescription drugs are another area of opportunity. Medicines are now responsible for almost a quarter of the cost of medical plans. A plan can often save 20 percent to 30 percent of its pharmacy spend if it works with an independent, transparent pharmacy benefit manager (PBM). You will want to know how your PBM gets paid, what they pay on average for the drugs, and what they do with any rebates from drug manufacturers. All PBMs are in the business of making money, and you probably won’t find a perfect one, but you’ll have much more success with a PBM that is transparent in its business practices.

Care must be taken because PBMs have become big business. Consider the fact that CVS Caremark (second biggest PBM) has a proposed acquisition of Aetna, the third largest insurance carrier. It’s a pretty good indication of where money is being made when PBMs are buying carriers. UnitedHealthcare and Humana own their own PBMs. (Optum Inc. and Humana Pharmacy Solutions are the third and fourth largest PBMs in the United States, respectively.) Cigna has a pending acquisition of Express Scripts, the largest U.S. PBM.

CBS’s 60 Minutes had an informative piece this year about PBMs and their conflicts of interest. At one point, journalist Lesley Stahl exclaims, “You’re saying that this PBM – whose function is to keep drug prices low – makes money when drug prices are high?” She was referring to Express Scripts, which stated in a lawsuit that they are “not contractually obligated to ‘contain costs.’?” Many of us may have thought that containing costs is exactly what the PBM on our health plans is supposed to be doing.

So, what are the most impactful strategies used by forward-looking employers? One of them is using a combination of direct contracting, bundled payments, and rational pricing services to significantly reduce the spend on high-cost medical services, which are most often in a hospital or specialty setting.

Some employers have abandoned the traditional preferred provider organization (PPO) networks and the discounts the PPOs negotiate with hospitals and doctors. Those discounts rely on a top-down approach, where the PPO is getting a discount off of the provider’s list prices. Think back before the internet gave us all the information about the real cost of cars. We used to try to negotiate down from the manufacturer’s suggested retail price. Today we negotiate up from the invoice price. There are specialty service providers out there who can bring this type of rational pricing to an employer’s plan. Switching to paying rational prices for medical services could save a health plan 10 percent to 20 percent of its overall spend.

Most of the approaches above require a level of flexibility that fully insured carriers won’t offer, and need to be implemented on top of some variation of a self-funded platform. However, don’t let that dissuade you from pursuing these strategies. Companies with as few as five employees can reasonably participate in these plans.

To be clear, these strategies do not reduce benefits to get to lower costs. This is about optimizing employer and employee dollars to get the best health care possible. It’s not necessarily easy, nor is it for everyone. Effort is required from the employer, the employees, and the right service providers. But do know that it is possible to break away from the status quo and take better care of employees while at the same time improve the company’s bottom line. Employing these revolutionary concepts can bring significant control to cost and quality for employer health plans.

Chris Van Buren is a partner with Embrook Benefits Consulting in Abington and a Health Rosetta Charter Certified Professional. He can be reached at chris@embrookbenefits.com.

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