Why Employers Must Purchase Healthcare – And How they Can..

For many Colorado employers, employee health insurance is among the largest expense line items, often second only to salaries and benefits.  Many manufacturers may pay more for healthcare than for their raw materials.  Yet the healthcare market fails to deliver-to-deliver consistent value.  Here’ why:

1. Quality Varies Widely.  Without question, you can get the best care in the world in the US.  But you don’t always.  Outcomes vary widely both across and within provider organizations depending on the specific service
2. Waste is Pervasive – and Incented.   Virtually all studies on healthcare estimate waste at 35-50% or more.  An estimated 40% of procedures either don’t help or actually harm patients. Potentially avoidable complications can account for 50% or more of the costs of any given episode.  And worst of all, the way health plans have paid providers for decades has encouraged such waste.
3. Increasingly expensive. With variability in quality and clinical waste, it’s no surprise that costs are climbing.  Employer premium increases run several times the CPI.  Employee premiums are up 24% and deductibles up 67% over 5 years while wage increases are up only 9%.
4. Quality and Pricing is Opaque.  Finally, the lack of transparency in healthcare virtually assures that it cannot function like other markets.  Whether for planned or emergency procedures, prices typically aren’t published or even known by the providers themselves.

These are not, however, symptoms of a “broken” system.  As Don Berwick reminded us, “Every system is perfectly designed for exactly the results it is getting.”  In other words, inefficiency, ineffectiveness, and rapidly rising costs are all the inevitable outcomes of a dysfunctional healthcare market place.  These characteristics result from how care is being bought and sold in every market in every state.

A quick review of the literature via google reminds us that effective, efficient markets have, among others, the following critical characteristics:

• Many buyers and sellers.(e.g., lots of competition)
• Ease of entry into and exit from the market (again, lots of competition)
• Complete price and quality transparency for consumers (e.g., the assumption of “perfect information)
• Comparability across products (e.g., common standards and measures so transparency is meaningful)
• Payment mechanisms that incentivize high quality (e.g., that put sellers at risk for poor quality or bad outcomes)

As a recent Commonwealth Fund article, “Making Health Care Markets Work Better: The Role of Regulation,” points out, not a single one of these conditions is met in today’s healthcare market.  And while we agree that Federal and state regulators can have some effect to ensure that some of these conditions are at least partially met, we continue to believe that employers are the key to creating a functional healthcare market place.  While employers cannot do much about the consolidation in healthcare that leaves Colorado with only a small number of health plans and providers, employers – numbering literally in the thousands – can and must (if they want better value) act as purchasers to create a competitive marketplace.  As the Commonwealth Fund article puts it…

“Historically, increased consolidation among providers has been associated with higher prices and lower quality. But the current emphasis on moving from paying for the volume of services to paying for the value they produce may change that dynamic.”

Exactly.  And employers hold the key for changing that dynamic,   They have the numbers.  They pay the bills – either directly or through their premiums.  By acting as purchasers, not simply payers, they can prod the market into improving value.  And they can do so by using the best-in-class tools offered by CBGH that address the two parts of the value equation – quality and cost.  These tools include:

• Bridges to Excellence– rewarding physicians who provide exception care for diabetes and cardiac patients.
• CareChex – assessing and rating hospital quality at the service line level.
• eValue8– providing a framework of standards to measure and compare health plan performance on critical functions.
• Leapfrog Group Satety Survey– grading hospitals on their safety.

Most of these are tools actually designed by employers for employers.  All of them have been adopted by CBGH as providing employers with the best tool kit possible for demanding improvements in the efficiency, effectiveness, and affordability of care.

If you want to know more about these tools and how they can fit into your efforts to rein in rising healthcare cost while improving the care your employees receive, give us a call.  Together we can change the marketplace.