Tackling the Problem of Health-Care Costs

Wednesday, March 21, 2018

Everyone knows that health-care benefits are expensive, usually an employer’s second-biggest expense after payroll. Employers are therefore looking at a number of strategies to keep these costs sustainable. Technology offers some solutions – for example, apps that help people access information and health care in new ways, ultimately expanding access and increasing transparency (or such is the hope), according to First Stop Health. So far, though, patients aren’t really adopting this kind of tech, for a number of reasons, which means that employers need to look for strategies that generate actual value for them and their employees.

One major trend in this area is price transparency. The web of health-care interrelationships, which include employee, employer, and insurance companies is complicated and dependent on theses relationships, and their negotiated rates and discounts, which leads to a situation where actual price information is impossible to find. Consequently, lack of price transparency, and the dependence on the insurance company to negotiate and pay the doctors’ fees, fosters a disconnected system that is unable to regulate cost.”

Another trend is telemedicine. Virtual care has been around for a while, but it hasn’t really been part of employee health-care benefits. “With health insurance premiums increasing (and employer contributions climbing by more than 60% since 2004), employers have shifted much of the cost burden to their employees. Telemedicine is a solution that can help slash costs for both the employers and employees by avoiding claims,” according to First Stop Health.

Next up is population health management. This strategy centers on data programs that “look at demographic and claims data to help companies combat the high costs of treating chronic illnesses like hypertension, diabetes, and heart disease,” First Stop Health explains. These programs are complicated, but they’ve proven to be an effective way to manage costs for the mid- and long-term.

One Digital points out that a further complication is that “employers don’t know what they don’t know.” The organization asks six critical questions to chief finance officers about health-care cost containment:

  1. Are you applying the same due diligence and analysis to your firm’s health-care planning and risk management that you apply to other aspects of your operations?
  2. Who are your trusted advisors, and what role are they playing in your organization's health-care cost-containment and health risk management strategies?
  3. Why is the traditional preferred provider organization model ineffective for containing your company’s health-care cost?
  4. Do you understand the advantages of engaging an independent, non-insurance carrier-based third-party administrator?
  5. Have you considered working directly with health-care providers?
  6. Are you frustrated that your wellness strategy isn’t generating the return on investment many vendors are proposing?

Some employers are looking to other countries for health-care cost-containment strategies. Researches at the Commonwealth Fund studied strategies from Canada, England, France, and Germany, finding that “all four countries rely on technology assessments to identify more cost-effective drugs and technologies; use hospital payment systems based on diagnosis-related groups; and tailor payment to reflect value. Although these strategies have likely led to more efficient use of health care resources, the researchers contend that, so far, they have failed to contain costs. Meanwhile, costs have remained lower overall in the four countries because they make far greater use of pricing and volume controls than does the U.S.”

The State of Connecticut has tackled health-care cost containment in a big way, and it provides a wealth of information on its website. One area it zeroed in on: controlling pharmaceutical costs. The first component is gaining a better understanding of drug pricing. Employers can’t negotiate strategic agreements with insurers, pharmacy benefit managers, and manufacturers if they don’t have adequate information about drug pricing and industry practices, so they need to promote transparency. One avenue is by pushing for new service delivery options that should “a) support pharmaco-economic studies to assess relative effectiveness of selected new drugs compared to existing drugs and to share research findings with the state agency; b) negotiate performance pricing contracts with manufactures, and c) develop the infrastructure for and implements indication-specific pricing.” The study also suggests saving money through bulk purchases of drugs, if possible, and pushing insurers to use “performance pricing and indication-specific pricing; implement programs to enhance medication optimization, such as paying clinical pharmacists for therapeutic management services for complex patients and rewarding primary care clinicians for timely medication reconciliation.”

And what about your workplace wellness program? It doesn’t work, according to research cited in this article from the Chicago Tribune. Many employers have realized cost savings and other improvements that don’t show up in the organization’s ROI, however, so the answer here seems to be that some elements of wellness programs work for some employers, so design your program carefully.

If you’re interested in this topic, you might want to attend one of the health-care benefit sessions at GFOA’s annual conference in St. Louis:

  • Behind the Curtain: Price Transparency in Health Care, May 7 at 4:15 p.m. Studies suggest that price transparency in health care could create an annual savings of more than $36 billion in medical costs – if patients and providers could get price information easily. Attend this session to understand the issues and to learn what steps governments can take to obtain the information they need in order to make more informed decisions about their health-care benefits.
  • Health-Care Cost Containment, May 8 at 10:20 a.m. This session will explain some of the keys to containing costs long term, including price transparency, virtual care, and population health management.
  • Myth versus Reality in Wellness Plans, May 9, at 8:30 a.m. Wellness plans have become an accepted strategy, but the results have been mixed. This session will explain wellness plan ROI, the kinds of programs that work best for a given strategy, and lessons learned from other governments.

You might also be interested in one of GFOA's other resources: