Seven Strategies for Employers as Healthcare Consolidates

I was having this discussion in a taxi heading downtown.

Rearranging my position on this friend of mine who’d had a bit of a breakdown.

I said, “Hey, breakdowns come and breakdowns go.

So what are you gonna do about it?  That’s what I’d like to know.”

From “Gumboots,” The Graceland Album, Paul Simon


A recent podcast by the Commonwealth Fund titled “Are Healthcare Mergers Good for Consumers” offers a rather critical look at the continuing consolidation taking place between health plans as well as between health systems.  When examining the impact that such consolidations have on quality and costs, the reporters observe that:

  • Insurers seem to feel that they need greater negotiating leverage over consolidating health systems and the systems, in turn, feel they need to get bigger to negotiate with the larger health plans.  Indeed, it’s a sort of arms race and employers are footing the bill.
    • Although savings are sometimes realized when insurers consolidate, there is no evidence that these savings are passed on to consumers.  To the contrary, the Aetna and Prudential merger of a few years back, touted as a savings strategy, actually increased employer premiums.
  • Similarly, the loss of competition among providers pushes pricing up, particularly so because consumers are reluctant to travel outside of their community.  At the same time, according to the reporters, the theory that quality will improve remains simply a theory without any substantiation.
  • Consumers and employers should not look to anti-trust laws or the Federal intervention to provide relief.

Similar themes have been echoed in the literature over the last several years.  The Catalyst for Payment Reform has reported on studies that, despite the argument by proponents that consolidations create economies of scale, the result is generally a 10-20% increase in costs.  And a recent article by New York Times health economist Austin Frat titled “Bigger Health Companies: Good for Medicare, Maybe not for Others” suggests that while so-called Accountable Care Organizations purport to “integrate” and “coordinate” care, the reality is that…

Larger organizations have greater power to demand higher prices from plans for doctor visits and hospital stay.  And higher prices paid by plans translate into higher premiums for consumers.

Our intent in pointing all this out to employers is not to rail against or whine about consolidation.  The harsh reality for employers is that they will be increasingly making multimillion dollar purchases in a market that offers less and less competition and higher and higher prices.   There is little they can do about that.   But if that is the reality, then the question for employers becomes exactly what Paul Simon raises in the quote above:  “What are you going to do about it.”  

At CBGH, we think there are several things employers can and should do.  While the following is not a exhaustive list, it is a starting point….


  • Purchase Proactively.  It’s time for health care costs to get C-Suite attention as part of their fiduciary responsibility.  Employers, at the senior-most level, must decide to be a proactive purchaser​s of care, not simply passive payers.  They need to make health care a top procurement priority using a team of financial as well as HR professionals.
  • Self-Fund. If you are not self-funded but are of a medium to large size, talk with your consultant about self-funding.  This is the only way you can take control.
  • Pay Smarter.  The Commonwealth Fund reporters argue​s that employers should ​change the financial incentives through bundled payments.  We couldn’t agree more.  ​In Colorado, PERA (the Public Employees Retirement Association​) has led the way.  Bundles are a win for employers, enrollees, and even for forward-looking hospitals.


  • Promote Transparency.  “Without ​transparency it will be very hard to keep prices in check” according to the Commonwealth reporters​​.  Again, we could not agree more.  Tools like Healthcare BlueBook can be uses to compare pricing and Comparion, Surgeon Scorecard, and Leapfrog can be used to compare quality.
    1. Benchmark Plan Performance.  If your health plan doesn’t participate in the eValue8 survey, then the simple truth is that you don’t know how it’s performing against national benchmarks and you don’t know what you are paying for.
    2. Engage Your Providers.  Unless the hospitals your enrollees use have received an A+ on the Leapfrog Safety Score, they are not receiving the care they deserve and you’re not getting the value you deserve.  (Click on the link to search for hospital results.)  As the purchaser, you need to talk to your hospital about what’s being done to improve.
  • Measure and Manage Down Your Risk.   Don’t get us wrong….we’re big fans of wellness.  But here’s the reality:  if you’re not measuring it, you’re not managing it.  You need to know the aggregate biometric scores for your employee population, you need to measure them over time, and you need a plan to manage them down.  If health care interventions are going to continue to get disproportionately expensive, you need a preventative approach using empirically proven programs like the National Diabetes Prevention Program.

​The landscape for employers is certainly changing but that doesn’t mean employers need be passive victims.  As Abraham Lincoln observed some time ago, just prior to issuing his emancipation proclamation, “our occasion is piled high with difficulty, and we must rise — with the occasion. As our case is new, so we must think anew, and act anew.