Healthcare Costs

The 3 Most Failed Strategies in Healthcare

Tuesday, October 22, 2019
Blog

Hope is not a strategy, yet many decisions that are executed when it comes to controlling or reducing healthcare costs are rooted in home. In this post we will take a closer look at three of the most failed strategies Employers have taken when it comes to addressing their healthcare costs.

Strategy #1: Grow your way out of it… one way or another.

  • “Our rates will go down as we grow, right?”
  • “If we band together with other employers (somehow) it will lower our costs, right?
  • “Larger brokers will help to get us better rates, right?”

These common myths are simply a form of hope. Most folks understand easy principals like bulk buying, laws of large numbers, and more, but these do not apply to healthcare the same way they do with other items.

Think about it this way… if >85% of your healthcare spend is determined by the cost of healthcare goods and services that your Employees are purchasing, how can you improve your buying power?

The large majority of healthcare consumers still buy healthcare services through a network. Whether it’s a PPO, EPO, POS, or HMO, it doesn’t matter if one group with Network A has 2 employees and another group with 200,000 Employees under Network A, both groups are paying the same price for services provided, per the contract itself.

The truth is, large Employers have figured it out. One example is Walmart, who is serving as a disruptive force in healthcare. As a large Employer they have more tools, resources, and solutions available to help reduce healthcare costs, but they are doing so by addressing the >85% of spend, which is the cost for services.

We go further into detail on other points of this failed strategy, in this blog:

How do your benefits provide emotional and financial relief to Employees?

Strategy #2: Skin in the game for members

Many Employers have been led down a path which indicates that the more that employees pay toward healthcare through increased Deductibles, Copay, Coinsurance, or Out of Pocket Maximums, the less the group will spend on healthcare since Employees are being better shoppers.

To this we would ask… what tools and resources are these employees being armed with in order to become a better consumer?

Deferring a renewal increase through either increased premiums or increased deductibles is still an increase – the difference is who is paying for it. In addition to this, Employers who have embraced this option have quickly run out of runway, as while Deductibles and Out of Pocket Maximums are capped by the Affordable Care Act, however healthcare costs are not.

Let us use knee replacements as one example. Healthcare costs are highly variable, especially for joint replacements. The cost of a knee replacement has increased by $10,000. This is akin to trying to catch up with a runaway freight train.

Strategy #3: Making moves.

  • “Moving to ABC carrier will create long-term stability.”
  • “ABC Network has deeper discounts”
  • “You have to move vendors every couple of years.”

To understand why this fails, we must look at cost switches. One example is a PPO Network.

Today, moving from one PPO network to another PPO network (despite what the carrier rep tells you) should be considered cost-neutral. There are many reasons why, but a huge driver is consolidation.

With health care systems becoming larger health care systems, this actually has resulted in greater leverage over the networks themselves. This provides them with the ability to create more consistency in the contracts they are negotiating. Here is one such example that has dragged out in 2019 between Boca Raton Regional Hospital (after being acquired by Baptist Health), who then dropped their contract with UHC.

Insurers and Networks have made “access” a primary buying decision for many groups. By offering a broad network and spectrum of providers (even low quality doctors) is important to their value proposition.

Health systems understand this as well. They realize that they are the value proposition, and can use this against the network to influence their contracts.

Ask yourself this question: Would you still have “ABC Network” if the largest health system where 40% of your population consumed health care wasn’t in network?

Need further proof? Here is a screenshot from https://www.brrh.com/Patients-Visitors/Information-on-UnitedHealthcare-Insurance-Contra.aspx. These sites tend to come down once a deal has been reached, so we captured it here.

Probablity of Agreement

Again, these are three of the lowest hanging fruits on failed strategies. We’ll continue to explore these, and also provide strategies that do work.

Having a goal is admirable, but having a proven strategy is a #DistilledConcept.

No cute ideas, only
distilled concepts.

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