Industry denials notwithstanding, reducing healthcare
costs is fundamentally against nearly every healthcare organization’s perceived
economic interests. That’s why it’s been such a struggle for purchasers to find
healthcare organizations that deliver truly better health outcomes at lower
cost. U.S. healthcare is built on a culture of excess: egregious unit pricing
and over-treatment. Many organizations promise value but few deliver.
As Florida’s Gov. Rick Scott, former CEO of Hospital
Corporation of America, pointed out at a venture capital conference a few years
ago, “What business wants to make half this year what they did last year?
That’s why the healthcare industry won’t fix the healthcare industry.”
Although direct contracting has gotten media attention
lately, the term doesn’t adequately convey the depth of purchasers’ senses of
frustration with and betrayal by the healthcare industry. Benefits managers’
and CFOs’ rage simmers below the courtesy that modern business practice
demands, but that anger foments searches for better solutions in every
healthcare niche. Employers and unions are quietly beginning to go around their
brokers and health plans, which have often become the complicit contracting
agents for the industry’s excesses. Seen from this perspective, direct
contracting’s potential is virtually limitless.
Many health systems actively seek direct contracts with
employer and union purchasers, making convincing cases about cutting out the
middleman’s share, but caveat emptor. Prudent purchasers should ask two
questions: Can the health system show data on successful health outcome
improvements and reduced costs for an employee group or other at-risk groups?
Will the system guarantee performance by putting their fees at risk against
targets that can be validated? A "no" answer to either should be a
deal breaker.
The Boeing Company’s contract with MemorialCare Health
System for its 37,000 southern California employees and dependents is a step in
the right direction. Boeing built performance target language into the
contract, ensuring MemorialCare has no incentive to over treat. MemorialCare
CEO Barry Arbuckle laid out his organization’s progressive position in clear,
pragmatic terms.
The Boeing contract, he says, will allow MemorialCare to
“earn certain incentives or, if we don’t meet certain criteria, incur a loss on
that particular aspect. There is no incentive to keep people in the hospital
and go to multiple specialists. For us, this is where healthcare needs to go.”
Many health system executives are far more reluctant.
Even in the best case scenarios, purchasers shouldn’t imagine health systems
will be willing to cut unit pricing or over-treatment patterns to the bone. To
preserve the prosperity they’ve become accustomed to, most will offer glacially
incremental cost reductions (or more likely some reduction in cost versus
expected trend, such as numbers that can be manipulated). While many health
systems promise to deliver better value, presumably translating to lower per
patient revenue and margins, we’ve heard more than one CFO say, “Why take less
until we have to?”
The Boeing-MemorialCare contract is notable because it’s
between a large, well-known employer and a leading healthcare institution. The
deal shows thoughtful purchasers with leverage and progressive health systems
are no longer standing on ceremony and are entirely comfortable betting on
circumventing health plans with old arrangements that often provide little to
no value.
Even with the leverage their local dominance lends them,
large institutions may not necessarily dominate healthcare marketplaces in the
future. Around the country, small, specialized, scalable organizations have
learned to manage care and cost in high-value healthcare clinical and financial
niches, such as cardiovascular conditions, musculoskeletal disorders, cancer,
drugs, surgeries, primary care, hospitalizations, imaging, large case
management and centers of excellence.
Some are willing to take financial risk against
performance targets that reflect significantly better health outcomes at costs
that can range between 25-50%lower than conventional care within a particular
niche. Savings across targeted niches can be greater than 20%. This is the tip
of an iceberg that could ultimately restructure much of current healthcare
purchasing arrangements.
These will be the real disrupters that direct contracts
will empower, but only if employer and union benefit managers see beyond the
conventional and are willing to swap out vendors who persist in delivering
excess rather than quantifiable value.
Source: Employee
Benefit News
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