Really Managing Care and Costs

Really Managing Care and Costs

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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.

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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"


Guest
bev M.D.
Mar 30, 2010

To me, this is the real benefit of having passed a(ny) health care bill – it keeps the conversation and the action going, instead of relapsing back into the unacceptable status quo. And people, don’t bother re-reminding me how bad the bill is and how awful the democrats are – my husband does it for you every day.
You are missing the point – which is that now the real work of finding ways to contain costs can and will begin, and will save lives in the doing.

Guest
MD as HELL
Mar 30, 2010

The best way to save lives and money is to avoid doctors.

Guest
Mar 30, 2010

Brian,
Can you write a little about Barbara’s wellness program?
(I’m on a learning spree….)

Guest
bev M.D.
Mar 30, 2010

You know MD as Hell, I do avoid doctors whenever possible, trust me – I am one,so I know what they can do to you. Much less what they’re thinking about you while they pretend to take care of you, like you.
But, to get to the point you should have made, the biggest reason I avoid doctors is because I have a 10K deductible. But when I can’t avoid them, and they want an MRI as happened to me this week,and I ask them if they have anything cheaper, they say “Jesus Christ” at my deductible but still want the MRI. So ya know what? I hope you never get sick.

Guest
Barry Carol
Mar 30, 2010

Brian – This is a very clear example of what sound management and hard work can accomplishment on the medical cost front. My perception, however, is that this company’s per employee costs in 2000 appear extremely high by national standards. I seem to recall seeing some data in Modern Healthcare Magazine from a year or two ago which showed that numerous large employers had per employee costs in the $4K range and even lower for those with comparatively young and healthy workforces like Whole Foods and Starbuck’s. I don’t have the actual data at my fingertips, however. If Langdale’s costs in 2000 were, in fact, at the high end for companies of comparable size, it suggests that there was a significant amount of “low hanging fruit” to be harvested.

Guest
Mar 31, 2010

Barry,
The Kaiser Family Foundation Employer Health Benefits 2009 Annual Survey (Exhibit 1.14) lists the Year 2000 blended premium for firms with 200+ employees as $6,521, or $1,121 (20.8%) higher than Langdale’s performance at that time. (On the other hand, premiums in the South have generally been slightly lower – about $80 for single coverage and about $200 for family coverage in 2009 – than national norms (Exhibit 1.3).)
More importantly, though, and as the chart shows, the impact of Barbara’s programming were substantial at the outset, but grew significantly over time as Langdale’s health care premium remained approximately stable while most firms’ costs skyrocketed throughout the country.
Margalit, here’s an overview of Barbara’s extensive approach to wellness/prevention and disease management. When she took responsibility for Langdale’s benefit program, she incorporated benefits for annual physical exams, company-paid flu shots, smoking cessation programs, annual screening for cancers (breast, prostate and colon), cardiovascular disease and prenatal care. She designed and arranged awareness, education and intervention program benefits to encourage healthier eating habits & better physical activity by participants to combat obesity and other co-morbidity issues. She also built in higher deductibles for not wearing seatbelts or helmets.
On disease management, Langdale has escalated its programming from a nurse advice phone line to a firm, Doctors Direct Health Care, that was more pro-active and provided solid evidence of ROI. The process begins with predictive modeling analytics of claims and Health Risk Assessment information to identify patients with risks. Langdale also established an incentive program for employees to participate in the company’s Health Risk Assessment – in this case, a $10 Wal-Mart gift card – that increased participation to 85%.
Programs were implemented to identify and manage high blood pressure, high cholesterol, diabetes, asthma and obesity. Langdale and the community partnership it participates with on these wellness/prevention programs claim an ROI of 4.8:1.
Langdale also invested in more sophisticated benefits communications tools – presentations that employees access at orientation, during open enrollment or when they have a specific need – that explain their benefits programs and what they’re trying to accomplish.

Guest
medinnovationblog.blogspot.com
Mar 31, 2010

Well done, Brian. I like your analysis because it supports my thesis that most savings will come from the bottom-up _locally), not top-down (nationally), The only thing I might add is that health savings accounts with high deductible are effective in saving money because they prompt patients to shop for value to save themselves (and the company) money.
Richard L. Reece, MD
PS I interviewed Jerry Reeves for this blog. Readers might want to search the archies to reread it. He demonstates that costs vary all over the landscape, even locally, and can be brought to heel through data analysis and directing traffice to high value, low cost sites.

Guest
EastCoaster
Mar 31, 2010

All of these initiatives are very good, but I’m not totally comfortable having employers be the ones to do it because of privacy concerns–which is part of why I’d like to get business out of the business of providing healthcare benefits.
It’s pretty easy to figure out who is receiving psychiatric services, and we aren’t yet at a point where the stigma is gone.

Guest
Mar 31, 2010

Readers interested in knowing more about Jerry Reeves’s approach to medical management should definitely read Dr. Reece’s excellent interview at http://www.thehealthcareblog.com/the_health_care_blog/2009/06/datadriven-health-care-an-interview-with-jerry-reeves-md.html.
EastCoaster, I really didn’t mean this post to be interpreted as supportive of employer-sponsored coverage, but rather an appreciation of thoughtful, disciplined medical management. Employer-sponsored coverage is simply the prevailing paradigm in the US at present. There’s much about it to like and to dislike. That’s a different discussion than the one I hoped for here.

Guest
Tom
Mar 31, 2010

Brian,
This article really hit home with me, as the company I work for falls into your description of mid-sized companies (overcharged and under-served). About a year and a half ago our CFO informed the entire management team of a “significant change” we would be making in order to better understand and control our healthcare costs – he spoke of many of the same initiatives you mentioned in this article. The TPA we use calls their solution “Healthcare Performance Management”, a title which hits the nail directly on the head.
The people directly involved in the healthcare decision-making process (CEO, CFO, HR) have access to a HIPAA compliant software portal which predictively models our data and presents it in a way which clearly shows the cost drivers within our plan. The next step is to engage those high risk employees through a variety of member marketing campaigns that encourage behavior change.
In addition, everyone in the organization (as well as other members on the plan) has their own login name and password to an employee-focused software piece. A cross between Facebook and your online banking portal, users can manage all aspects of their healthcare plans, while being able to chat with registered nurses who field questions (and can even contact my doctor if need be!).
From what I have seen so far, this is the direction all employers should be moving toward and is clearly the future of healthcare.

Guest
Chris
Mar 31, 2010

Brian,
My company has been using software and BI tools to identify risk and manage this risk proactively. Healthcare Performance Management has been very effective here when creating plan designs that properly balance risk by involving the employees in incentive based education and services that have reduced our costs by 20% on the pharmacy side and 6.5% on the medical side in less than two years.
With the unrestricted flow of data in real time we are addressing issues, prior to them being catastrophic, and increasing productivity at the same time.

Guest
Mar 31, 2010

Tom and Chris,
Thanks much for your kind comments. To my mind, this is exactly the kind of response I was looking for. In much of my work, I find that many employers have been demoralized by their inability to positively impact outrageous costs. Barbara’s story and yours are shining examples that there’s another, much better way that results in better health, lower costs and higher productivity.
If you wouldn’t mind, please re-broadcast this to your employer pals. It’s essential to get this kind of message around.

Guest
Peter
Mar 31, 2010

Brian, so how do we duplicate this for everyone, small, medium and large firms/employees as well as the individual market?

Guest
Mar 31, 2010

Brian:
I wonder how many of the employers who have been successful in managing their costs are self-insured as opposed to fully insured? Self-insured employers are generally free of state mandates and rating rules, can design their own benefits, manage their own utilization, create incentives, etc. This group of employers was strangely quiet during the health reform debate, which concentrated on nongroup and small group, both heavily government regulated sectors. I explore issues like this one at healthreformmusings.blogspot.com.

Guest
Nate
Mar 31, 2010

“To me, this is the real benefit of having passed a(ny) health care bill”
Odd comment bev, since this reform in a way made self funding, the very thing that made this possible, impossible for employers not already self funded. Since 1974 self funding has proven extremely effective in controlling cost but government makes it harder and harder to do each year.
The real work has been going on, until government passed any willing provider, UR limits, COBRA poorly written, etc etc etc. I can only imagine the postive things you would have to say about the repeal of ERISA which would toitally eliminate self funding. Seems to be a serious detachment between what your saying and what you think your saying.