Really Managing Care and Costs

Really Managing Care and Costs


One of my favorite health care stories is about Jerry Reeves MD, who in 2004 took the helm of a 300,000 life health plan in Las Vegas, including about 110,000 union members, and drove so much waste out of that system – without reducing benefits and while improving quality – that the union gave its members a 60 cent/hour raise. There was no magic here. It was a straightforward and rigorously managed combination of proven approaches.

Dr. Reeves’ work betrayed the lie that tremendous health care costs are inevitable. To a large degree, the nation’s major health plans abetted this perception when they effectively stopped doing medical management in 1999. (Most have recently begun managing again in earnest.) The result was an explosion in cost – 4 times general inflation and 3.5 times workers earnings between 1999 and 2009 – that has priced a growing percentage of individual and corporate purchasers out of the health coverage market, dangerously destabilizing the health care marketplace and the larger US economy. In 2008, PriceWaterhouse Coopers published a scathing analysis suggesting that $1.2 trillion (55%) of the $2.2 trillion health care spend at that time was waste.As the chief sponsors for most Americans’ health coverage, businesses have struggled to cope with health care cost while identifying value. Large American businesses, with tens or hundreds of thousands of employees, have recruited high profile benefits professionals – think of Jill Berger at Marriott, Ned Holland at Embarq, Peter Hayes at Hannaford Brothers or (the recently retired) Cecily Hall at Microsoft, each with terrific reputations – who, with their staffs, orchestrate sophisticated campaigns focused on the health of their employees and their families, and on the cost-effectiveness of their programming. Even so, few large firms provide comprehensive, quality benefits at a cost that remains consistently below national averages, and for years now America’s CEOs have routinely reported that their top business concern, health care, is their most unpredictable, large cost.

For mid-sized business, though, – here I’m referring to firms with 200-5,000 employees – the task is significantly more difficult. Health benefits managers in these companies have far fewer resources, typically work alone without the benefit of staff, and are often overwhelmed by the complexity of their tasks. Held accountable for their organizations’ health costs, they often default to whatever the brokers and health plans suggest.

But a few excel. For them, managing the many different issues – e.g., chronic disease, patient engagement, physician self-referrals, specialist and inpatient over-utilization, pharmacy management – is a discipline. A couple years ago, I was introduced to someone like this.

Barbara Barrett was trained as a paralegal. She is now General Manager of TLC Benefit Solutions, Inc., the benefits management arm of Valdosta, GA-based Langdale Industries, Inc., a small conglomerate of 24 firms with 1,000 employees, engaged primarily in wood products for the building construction industry, but also in car dealerships, energy and other concerns.

Valdosta is rural, which puts health benefits programs at a disadvantage. Often there is only one hospital nearby and so little cost competition. Rural Georgians also may have lifestyles that make them prone to chronic diseases, which are expensive. And so on. You get the idea.

Here’s the interesting part. Since 2000, when Barbara assumed responsibility for the management of Langdale’s employee health benefits, per employee costs have risen from $5,400/year per employee to $6,072/year per employee in 2009. That’s an average health plan cost growth of 1.31 percent per year.

I compared Langdale’s health plan cost growth to the average commercial coverage inflation rate for an employer with 200+ employees provided in the Kaiser Family Foundation/Health Research and Educational Trust (KFF/HRET) 2009 Employer Health Benefit Survey. The calculation showed that, in that nine years, Barbara’s management allowed Langdale to provide its 1,000 employees and their families with comprehensive medical, dental and drug benefits for $29 million less than the average of other firms that size. That’s a nine year savings of $29,000 per employee, or an average of $3,200 per employee per year lower than the national average. All without reducing benefits or transferring the cost burden to employees, and while quantitatively improving quality.


So how did Barbara approach the problem? Here are a few of her steps:

Under her leadership, Langdale set up TLC Benefit Solutions, a HIPAA-compliant firm that administers and processes Langdale’s medical, dental and drug claims. This allowed Barbara to more directly track, manage and control claim overpayments, waste and abuse.

The claims also gave her immediate access to quality and cost data on doctors, hospitals and other vendors. She supplements these data with external information, like Medicare cost reports for hospitals in the region. This allows her to identify physicians and hospital services that provide low or high value. She then created incentives that steer patients to high value physicians and services and away from low value ones. When complex services necessary to treat certain conditions are not available or of inadequate quality or value locally, she shops the larger region, often sending patients as far away as Atlanta, three and a half hours away.

She analyzes the claims data to identify which patients have chronic disease and which patients are likely to have a major acute event over the next year. Chronic patients are directed into the company’s opt-out disease management/wellness/prevention program. Acute patients are connected with a physician for immediate intervention.

She provides Langdale’s employees and families with confidential health advocate services that explain and encourage use of the company’s wellness, prevention and disease management programs. And she uses incentive programs to reward patients who enter these programs and meet targets.

Barbara has mounted many more initiatives in group health, but her responsibilities also extend to life, flex plan, supplemental benefits, retirement plan, workers’ compensation, liability and risk insurance. The results for Langdale in these areas include lower than average absenteeism, disability costs and turnover costs.

The point is that Ms. Barrett and Langdale have been pro-active, endlessly innovative, and aggressive about managing the process. That attitude and rigor has paid off through tremendous savings, yes, but it has also produced a desirable corporate environment that demonstrates that Langdale values its employees and the community. The employees and their families are healthier as a result, and are more productive at work. This has borne unexpected fruit. The industries Langdale is in have been hit particularly hard by the recession, and the benefits savings Barbara’s efforts generate have helped save jobs.

Barbara Barrett and many others like her on the front line are virtually unknown in health care. Most often, their achievements go unnoticed beyond the executive offices.

But they manage the health and costs of populations in a way that all groups should and could be managed.

Brian Klepper is a health care analyst.

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64 Comments on "Really Managing Care and Costs"


Great website. Lots of helpful information here. I am sending it to some friends ans also sharing in delicious.
And naturally, thanks for your effort!

Jun 11, 2010

I would limit this option to those who could, in effect, demonstrate that they could handle the additional financial risk by proving that their income was above an appropriate minimum threshold.

May 31, 2010

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Daryl Gross
Apr 25, 2010

I believe the price of MRI and CT machines will drop below the million dollar threshold set by Govt. This will keep util rate at 62 per cent. Business as usual. Without tort reform the number of marginally necessary studies requested will not change. You would not belive the number of cancers found earlier using this technology. It does save may lives.Remember the most cost effective care is NO care.The president will not be subject to the same constraints he is passing on to the feeble masses.Just ask him. He as already admitted this.


“My needs as the employer, one paying the bill, aren’t always the same as the plans either.”
…..or the employee…..
And is it accurate to say that the employer is the “one paying the bill”?
Isn’t the employer just one more intermediary in the payment process chain that begins with the patient and ends with the doctor?
Whatever the employers pays for insurance is in lieu of wages, so it’s not really the employer’s money to start with.
And then there are the tax exemptions which make us all the ones paying the bill.

Apr 3, 2010

I usually use word, mainly for the spell check, might not believe this but I spell like a third grader, but occasionally intend to write just a quick note so type it directly. Something in the back of my mind about an ounce of prevention and pound of cure.
A cafeteria plan would allow that, you can offer any plans you want under it. I would still imagine people who wanted to abuse a certain benefit would pay more for the plan that allowed it then once done switch to the cheaper plan. We see behavior like this in dual option dental plans. They will use the cheap DHMO until they need ortho or TMJ coverage then switch to the indemnity plan, get the work then switch back.
Its very hard to offer people the option of doing the right or wrong thing and not penalize them the full cost. If you penalize them the full cost or close to it your better off just not covering it at all, giving them back the extra premium and let them pay for it outside of insurance.
We fight the same battle with good and bad providers or treatments. The only effective way I have found is to not allow service at the provider or cover the treatment if it is really bad, or don’t cover the additional cost. The latter was effective until providers had a stroke of genius and just started writing off or covering the difference. You can get coupons from pharama to cover the difference in co-pay when they are moved from one tier to the next. Some chiro and other non core treatment types will accept insurance as payment in full.
In all leads back to insurance not being insurance any more. We need to redefine insurance to mean what it does in the dictionary and modify our insurance plans accordingly.
Personally I would like to see the old CA PHO/IPO/staff model competition. Break the providers up like they were MA bell. Then have them compete for business based on quality and cost. As an employee you would get your $x and pick which network you trusted for your care.
As the administrator/employer I would still want to retain the cost containment, disease management, and other programs at the group level for continuity of care. When someone left one plan or a plan was discontinued I wouldn’t want to lose what had been built so far. My needs as the employer, one paying the bill, aren’t always the same as the plans either.
One of the hardest selling obstacles yet one of the greatest advantages of self funding is the compartmentalization of the pieces. The ability to take the best service from multiple vendors to create the best plan. It’s that complexity that scares off to many groups though.

Apr 3, 2010

“1 & 2 are describing cafteria plans, use to be very common. Employees get $x and choose between multiple medical, dental, vision, FSA, life etc etc. THe problem is adverse selection.”
Deductibles/copays were not what I had in mind – this is in fact just cost shifting, although there is an extra effect curbing utilization. What I thought of is managing the plans as described in the OP, and also to offer plans that explicitely prevent unnecessary exams/procedures.
Margalit, “I am not comfortable making assumptions based on anecdotal evidence.
We all feel that Americans have too many MRIs for plain headaches and we all feel that patients are demanding these things. I would like some scientific data to back up these assertions.”
The problem of too much scanning, at least for headaches, is at the level of “obvious, openly acknowledged but largely unresearched problem”. I encounter this on a daily basis (as I see very many patients for specialty consultation who already had scans). Just medicare claims data will not prove anything (happy to explain why if you are interested) – what you need is international comparison, maybe even prospectively, and then study the frequency of abnormal findings. But I have read, in medical hournals, editorials and imaging guidelines who start off by stating this obvious problem.

Barry Carol
Apr 3, 2010

Nate – To protect against lost comments, I prefer to type my comment in Microsoft Word first, save it, then highlight all (CTL A), copy (CTL C) and then past to the comment box (CTL V). Then edit as necessary within the comment box.

Apr 2, 2010

I almost forgot to mention that online Canadian drugstores offer fantastic prices. Please look for legitimate sellers of prescription drugs online. Look for someone licensed with a great reputation. This may go without saying but you’d be suprised at how many people overlook the obvious steps to protect them.

Apr 2, 2010

True health care in the United States is skyrocketing but why not buy prescriptions from a reputable online pharmacy in Canada. Canadian pharmacies are now enjoying moderate profits by offering drugs at an affordable price. I subcribe to a health care blog myself. Yours is awesome! Thank you for all the great information.


Nate, just copy the text (highlight all -> Ctrl-C)before you submit your comment. That way you still have it and can re-post it after the thingy malfunctions….

Apr 2, 2010

lost my dang post, eaten by the captch again.
“6) Some plans to cover generic drugs only, branded drugs are only covered with a favorable independent review and some copay, or per patient self pay.”
Theraputic reimbursement, was hearing about this at a conference last month. Mimics the NHS and how they handle Rx. For a therapy they allow $x which is roughly the cost of the generic. A brand must either charge the same as the generic or convince people they are supperior and should be paid more out of their pocket. The data I was given says 50-70% savings. What I have been dealing with this month in psioris treatments I would beleive it. I’ll hopefully get some groups to try it before the end of the year.
1 & 2 are describing cafteria plans, use to be very common. Employees get $x and choose between multiple medical, dental, vision, FSA, life etc etc. THe problem is adverse selection. People eventually learn to buy the plan with the greater economic value. Eventually the cost to buy down from a $500 deductible to a $250 deductible would be $250 plus premium tax and fixed cost. It’s not sustainable.
Had a long winded comment on HDHPs being good for poor people as well as rich but that will have to be rewritten another day. Higher deductibles are always the efficient answer. Low deductibles and out of pocket are never cost effecitive.


Barry, as I said, I don’t have a problem with making this option available, as long as the voucher covered a decent plan and as long as we ascertain that people are able to carry the risk. I just don’t think it will have a sizable effect on overall costs. As you said, these will be largely healthy folks anyway.

Barry Carol
Apr 2, 2010

Margalit – First, the upper half of the income distribution starts at about $50K. We’re not talking about just millionaires being eligible for this. Second, there is a broad spectrum of risk tolerance across the population. People with a history of good health or even a well controlled chronic condition like hypertension or asthma might be up for this. I take five prescriptions for heart disease which would cost between $2 and $3K per year if I had to buy them out of pocket. If the premium differential between the low deductible plan and, say, a $10K deductible were high enough, I would consider it because I can afford to take the risk. Bev M.D. has stated in the past that she has a $10K deductible policy now. Maybe you’re very risk averse but a lot of people are more willing to assume financial risk within reason and within their financial means. Also, some people might have high medical costs in one year but low costs in most other years. That’s one of the things savings or rainy day funds are for.


It doesn’t make any sense to me. Why would wealthy people choose to buy down? The savings would not be consequential to them, so why take the risk? I would expect the wealthy to purchase more coverage (for the pianos) on their own, not less.
I don’t have a problem allowing them to opt out, but I don’t see anyone doing it.