Changing the Healthcare Landscape: Employers’ Role in Delivering Change

In this blog series and companion eBook, Aligned Incentives: How Employers, Payers, and Providers Can Partner to Fix Healthcare, we unpack the role each of these sectors must play to help create the sustainable healthcare system fixes capable of renewing the U.S.’s reputation as one of the most innovative, effective, and affordable healthcare delivery systems in the world.

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All three sectors can drive improved healthcare system value, but they also cannot do it alone. We’ll examine what the health system needs from each sector, what each sector needs from the health system, and how together they can chart a path forward to change healthcare for the better.  

Employers’ Role in Delivering Change

What do employers need from the health system?

Employers desperately need relief from the rate of premium increases they have shouldered for decades, and the variable and inconsistent performance that comes with it. They need health plans to deliver innovative payment models that incentivize health systems to transform their care delivery models to improve outcomes, access, and costs for their employees and dependents.

What does the health system need from employers?

In a word, commitment. In a few more words, employers need to help break the cycle of short-term decision making by building payer relationships that prioritize preventative and proactive benefits. And payers need employers to partner with them in value-driving programs, even in their pilot phases, to ensure provider engagement.

As one of the primary private buyers of healthcare services (behind the federal government and private households), employers have tremendous influence within the healthcare industry.  While large employers wield significant buying power, employer groups of all sizes battle various challenges that require a carefully calibrated balancing act to get right. Groups of all sizes have felt the frustration of the rapid increases in healthcare costs and the ballooning premiums that come with them. But, how to break this cycle?

Dan Forbes, director of total rewards at JD Power, has spent his career leading employers through this challenging terrain. Among the competing priorities mentioned above, Dan made it clear that these efforts must start and end with meeting the financial goals of the organization. 

Most CFOs see this huge line item on the budget and understand the do-nothing approach leaves you with 8 to 10% growth on it. So, you have to find the levers that can help you get it down to 2%. – Dan Forbes, JD Power

The barriers to manageable healthcare benefit costs

Misaligned incentives drive much of the inefficiency in the healthcare system. Here are a couple of examples.

Short-term thinking. It’s well understood that the most expensive cases often involve a complex treatment for a patient with numerous co-morbidities. Under-managed behavioral health problems, home life challenges, and chronic diseases lead to challenging interventions, failed recoveries, an escalation of patient encounters and bills, and a lack of coordination between care teams. This relationship between complex patient needs and the burden to the health system is well understood. Why then is our health system so woefully under-invested in behavioral health support and full-service care coordination?  

Consider the enrollment cycle for health plans and employers. A member today may not be a member in three years, let alone 15 years. That means health plans are incentivized to be cost effective within a given year, and thus, long-term proactive care management strategies often are not a top priority. When these services don’t get prioritized by payers, health systems respond accordingly, building resources to support surgeries and inpatient care. Meanwhile, meaningful care coordination and patient support services take a back seat. After all, if a patient has a complication and must return for more care, a hospital can often find a way to get paid for that.

Moral Hazard. When we are covered by insurance, we are protected against the cost risk associated with pursuing additional treatments. This incentive toward utilization while insulated from the associated financial risk is known as “moral hazard.” We, the consumers, are often the ones driving low-value utilization. Whether it is requesting additional tests, seeking specialty care after a WebMD wormhole, or demanding futile end of life services, there are many ways patients and their families also contribute to the high levels of utilization that have made our health system so expensive—with outcomes that are often below standard. 

The work to be done

The first example above underscores the importance of building long-term employer and health plan relationships—because it opens up opportunities for innovation. This was a common refrain in my conversation with Dan Forbes. “Most medium to large employers are on a 3-year cycle with a health plan,” said Dan. “How do you build in an incentive for the employer to stay longer with the carrier?” A longer commitment—tied to specific value-driving programs—could allow the health plan to better address a number of their challenges and help shuffle their priorities. When the cycle of short-term thinking gets broken, it opens up more opportunities to invest in benefit design that would otherwise go under-supported or care models that would go unfunded.

The good news for employers 

Many of the value-based payment solutions expected to drive industry change already exist in various markets. They generally feature mechanisms that shift risk, currently borne by self-insured employers, upstream to the providers delivering care. Employers could open their arms to these kinds of payment arrangements. They represent possible solutions to the annual ordeal of battling a 10% premium raise, and their viability is enhanced by involving the full weight of member participation from as many employers as possible. Unfortunately, many employers feel they have been burned too many times by cost savings programs (which often bear an administrative fee), so trust between the employers and the payers must be built, or re-built.  

 Kristie Putnam, who recently finished a stint as VP for Provider Partnership Innovations at Regence Blue Cross (a regional health plan) and has transitioned to the role of market president for Agilon Health (a company focused on partnering with providers to lead the transition to value-based healthcare), echoes this perspective.

At the end of the day, employers are looking for value. They are tired of seeing premiums increase year over year. They don't want to change plans over and over again, but they don’t have a choice if we aren't innovating and together creating solutions.  - Kristie Putnam, Agilon Health

Aside from participating in payment innovation programs that have the potential to fail, what else can employers do? Certainly, self-insured employers enjoy more leverage and flexibility here, and there is no one-size-fits-all solution. Here are some ideas.

Know the unique needs of your employees and dependents. As simple as it sounds, the most important thing is to understand the unique needs of your employee and dependent population. And then ask: How can we address those needs in a way that takes advantage of the programs already in place? For example, you might tackle ballooning costs from specialty drugs by structuring benefits that encourage the use of biosimilars that are clinically effective and less expensive.  Or, as another example, if you are concerned that your members aren’t receiving sufficient access to providers, or that providers are too geographically dispersed, you might consider a “virtual first” benefits package that encourages the use of telehealth in clinically appropriate situations.

Consolidate purchasing power. Another important way that employers can enhance their value proposition is by working together and combining their purchasing power through collaborative organizations that promote employers’ shared interests. Some collaborative employer organizations work to deliver innovation by combining the purchasing power of member groups.  By forming or joining these kinds of cooperatives, buyers of healthcare can promote innovative programs that reallocate risk in ways that may allow them to extend niche benefits to their employees and dependents. Another angle toward this goal is the trend toward Center of Excellence (CoE) programs, in which an employer works directly with a high-performing provider to encourage all of their members to receive their care at the high-value CoE. These programs often also have a concierge component, which can enhance the member experience and further incentivize the member to choose a CoE provider.

Often, a sense of direction is what is missing for employers, who may find themselves frantically reacting to a new challenge instead of acting on a healthcare strategy. What is your end goal? What are you going to invest in to get there? An important first step to develop these strategies is to truly understand your employees. Analysis on group data can unearth important strategic insights and define opportunities that had previously gone undetected. Or, by undertaking experience design efforts, employers can better understand gaps and opportunities that impact their bottom line in ways that range from overt and direct to distant and psychological. The output from an analysis like this can help create an effective pivot program for any employer—a way to be more strategic, intentional, proactive, and less reactionary.

Pulling it Together

Self-insured employers, in particular, have options for driving innovation to lower costs, but they need help with the work to be done. It starts with an assessment. Who are your employees? What do they value? What are the unique needs of your covered lives? What health plans offer the products and programs that fit those needs? Is there an opportunity to partner directly with a provider organization?  This involves complex data analysis, experience design, and strategic planning. From here, employers can act with confidence, form lasting partnerships, and deliver the commitment the industry needs from them to help drive better value.

4-Part Blog Series:

  1. Part I Intro - The Work to Be Done
  2. Part II - Employers’ Role in Delivering Change
  3. Part III - Payers’ Role in Delivering Change
  4. Part IV - Providers' Role in Delivering Change

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