Cut Health Care Benefit Costs and Improve Quality With These Strategies

Aug. 5, 2015
Two strategies that provide employers with new opportunities to provide quality care at lower cost are facilitated by three trends

The key to higher value health care is achieving better patient outcomes at a lower cost per patient. Of the many value-based strategies currently available to employers, two are particularly noteworthy:

One: Employers can build and “curate” medical service provider networks that leverage all available delivery channels to ensure that care is being provided appropriately and affordably.

Two: Employers can add value-based contracting to traditional fee-for service reimbursement arrangements to require providers to focus on outcomes and not just cost.

These two strategies that provide employers with new opportunities to provide quality care at lower cost are facilitated by three trends:

Economics leading to consolidation. The first trend is a massive consolidation of health care providers, including hospitals, physician groups and pharmacies. When these consolidations occur, providers can leverage capital expenses over a larger community while patients and their sponsoring employers benefit from care being delivered in optimal venues. For example, patients whose medical needs are not acute can be treated in a hospital’s affiliated clinic for significantly less many than in its emergency room.

Consolidations typically result in higher prices because they eliminate competition. However, consolidations among health care providers create the potential of upside economic advantage for all parties.

Physician shortage opening up new access channels. A second trend is a shortage of physicians, especially in primary care. Presently, the shortage in primary care is estimated at 16,000 doctors, and it is projected to grow to 50,000 to 55,000 by 2025. Partly the result of baby boomer physicians retiring, the shortage is mostly due to population growth and aging, with a modest portion attributable to health care reform having expanded the need for access.

This shortage is being mitigated in several ways. Among them are telemedicine, smartphone-based health applications – which can enable remote monitoring of chronic conditions, among other activities – and empowering other health care professionals to assume some of the activities that have been reserved for physicians. All of these open up new channels for accessing health services.

Health reform shifting focus to outcomes. A third trend is the impact of health care reform legislation and its focus on value-based reimbursement methodologies. The Patient Protection and Affordable Care Act legislates numerous value-based contracting arrangements and reimbursement approaches that challenge providers to manage more than price. Providers must also manage quality of care, efficiency of care, and the longitudinal outcomes of the population they are caring for.

... value-based arrangements will supplant discounted fee-for-service as the dominant reimbursement model over the next five to seven years.

These three trends also are giving rise to new types of provider organizations and a change in how they are compensated. For example, new entities such as Accountable Care Organizations (ACOs) operate on the premise that a unit cost discount alone is no longer the sole criterion for contracting. And already, major health plans are introducing new contracts with their network providers tied to unit cost, plus quality metrics and efficiency measures. Inherent in these new contracts is a gradual move to more provider accountability for population outcomes. These value-based arrangements will supplant discounted fee-for-service as the dominant reimbursement model over the next five to seven years.

At the same time, care is being enhanced through the focus on primary care expansion by retail clinics, “medical homes” – partnerships of providers that place patients and their families at the center and offer services around them –and coordinated care management.

Similarly, more employers are adopting or expanding onsite health centers and the services they provide to employees. These services range from biometric screenings to lifestyle coaching to primary and urgent care. According to the Towers Watson 2015 Employer-Sponsored Health Centers Survey, of those employers responding to the survey that have onsite health centers (77%), 38% plan to add more in the next two years. By 2018, two-thirds of these employers (66%) expect to expand or enhance the types of services they offer, with the most common additions being wellness, pharmacy and telemedicine.

Consolidation of health care providers, the emergence of new channels for accessing health care, and the addition of payment systems that reward outcomes create the ability for employers to develop curated networks and integrate numerous payment models to achieve optimal value. These are strategies that all employers seeking quality at a lower cost should consider.

Randall K. Abbott is a North American leader and senior strategist in Towers Watson’s Health and Group Benefits practice. Abbott has over 35 years of experience consulting to many of the nation’s largest and most complex employer-sponsored health plans.

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