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Forget Washington and the political debate over Obamacare. The real battle for the future of health care is being fought in the world of business, where tens of thousands of companies have seen their financial well-being undermined by skyrocketing employee health costs.

Although few people realize it, employee health costs have now become the third-largest expenditure for U.S. businesses today, constituting a whopping 8 percent of total compensation. And they are rising fast, more than doubling in just the last decade to more than $15,000 a year for family coverage. Of that cost, 73 percent is paid by the employer.

Yet most chief executive officers are curiously passive, failing to employ even the most basic management tools and market incentives to deal with the problem. Employees and employers alike — but first and foremost the boss — need to be held accountable for reducing the cost burden that is damaging so many companies’ bottom lines.

Here are seven things that CEOs can do:

No. 1: Give incentives to insurance brokers.

Most employers buy their health insurance through brokers who make more money when the plan costs more. Not exactly a smart way to get market forces working in your favor. Better to pay brokers on a fee-for-service basis. Better still to offer them a bonus tied to the amount by which they can reduce a plan’s costs, not a plan’s benefits.

No. 2: Give incentives to your managers.

Every CEO learned in business school that if you want to achieve a key business objective — be it launching a new product or reducing company health costs — you need to provide incentives to managers to help you succeed. Yet rare is the boss who offers bonuses to human-resources and benefits managers who reduce claims costs for the company. It’s long past the time for CEOs to get the incentives working in the right direction inside their companies, as well.

No. 3: Give incentives to healthier employees.

A major source of rising workplace-health costs is the declining fitness of employees. As a new Gallup poll reports, an astonishing six of every seven full-time employees in the U.S. (or 86 percent) are overweight or suffer from a chronic health condition. This is a terrible waste of human capital and an enormous burden on the bottom line, costing employers more than $153 billion a year in absenteeism alone — four times the per- capita, lost-productivity cost in the U.K.

We already know that wellness programs can reduce employer expenses. A study in 2010 by Harvard health economist Katherine Baicker found that medical costs fall by $3.27 for every dollar spent on wellness programs, and absenteeism costs fall by $2.73 for every dollar spent.

A new breed of accountability-based wellness programs can deliver even bigger savings. In these types of initiatives, participants willing to be held responsible for their health- related lifestyles pay a reduced contribution toward their premium — often half that paid by non-participants. Those with identified health risks must work with a coach to make lifestyle changes to keep receiving the lower premium. A recent study we conducted of accountability-based programs at four mid-size employers found that the total paid claims of program participants dropped to $2,269 compared with $6,187 for non- participants.

The point here is that CEOs can’t keep handing out unlimited health benefits without strings attached. Employees who don’t even try to modify their health risks should pay more.

No. 4: Employ disease-management programs to target the costliest health risks.

Most employers assume that smokers have the highest claim costs, which is why Wal-Mart Stores Inc. (WMT) recently added a $2,000-a-year surcharge to the premiums of employees who smoke. But their claims are only 15 percent to 20 percent higher than those of non-smokers. The claim costs of depressed employees, however, are a whopping 70 percent higher than those for non- depressed employees, according to research from the non-profit Health Enhancement Research Organization, which studies the impact of modifiable behavior on employee health costs. Disease- management interventions are effective, but most focus only on physical-health risks. The best way for CEOs to deal with higher-cost risks, such as depression, is to promote wider utilization of employee-assistance programs that can provide early intervention and counseling to employees.

No. 5: Stop getting ripped off by pharmacy-benefit managers, or PBMs.

According to David Balto, a former policy director at the Federal Trade Commission, “There is no part of the health-care industry more egregious, harmful or rife with corruption than PBMs,” an industry whose profits have increased 400 percent in the past five years. Legal actions brought by multiple state attorneys general have resulted in $370 million in fines for PBMs accused of deceptive trade practices and receiving manufacturer kickbacks that boost the cost of company-paid prescriptions. Use one of the new breed of transparent PBMs that provide health-plan members and administrators with drug price sheets and claims data to help them manage their prescription costs, or pick an insurer that does.

No. 6: Join with other companies and with providers to reduce costs.

The Employer Health Care Alliance Cooperative of Wisconsin is an employer-owned cooperative that helps 160 member businesses manage health costs by bringing their collective bargaining power to the table when negotiating with insurers and health-care providers.

You can also join directly with providers. The natural-gas company Questar Corp. contracted with the University of Utah’s Neuropsychiatric Institute and its network of providers 11 years ago for all mental-health services for Questar’s 1,700 employees. Because the employer’s and provider’s incentives were aligned, Questar’s costs have stayed the same, even while health costs elsewhere have doubled.

No. 7: Pay for results, not for services.

Walt Disney Co., American Express Co., Qualcomm Inc. and other companies are building onsite medical clinics and often paying their doctors bonuses for reducing employees’ health risks. This gets results.

As Warren Buffett told CNBC in March 2010, “Insurance is not the problem. The problem is incentives.” He added, “We’ve got payment for procedures and not payment for results.”

Author and health-care industry thought leader Joe Flower says, “We could have better health care at half the cost, without denying care to anyone, just by driving economic incentives back into the system.”

Washington can’t do that, so it’s up to CEOs to make it happen.

Originally published in Bloomberg View 2012.  Reprinted with permission. The opinions expressed are those of the author.

Darrell Moon is CEO of Orriant, a wellness-program provider serving companies nationwide.

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22 Responses for “It Takes a CEO to Save the U.S. Health-Care System”

  1. bev M.D. says:

    You have hit the nail on the head. I do not think CEO’s realize the clout they would have in concert. If this were another kind of problem inside their companies, they would not rest till they had solved it. Somehow, they embrace their seeming helplessness on this one.

  2. Barbara Duck says:

    These are all very good ideas and worth reading; however the reality of all of this is that dark side of deception by math and flawed data that is arising out there and it’s all over the place and healthcare, mostly the payer end has truckloads of those issues. I call it the Attack of the Killer Algorithms and they do exist along with the good ones out there that help us.

    Even at Davos this year,nothing big came out of it and when you have automated algorithms making decisions that impact all of us personally that you can’t see, talk to or touch it’s a problem when we rely on humans doing customer service to correct. Social Security death index has 31k living people in there now, which is small by comparison but not to the 31k who are “dead” by those standards.

    Richard Cordray, our new consumer protection czar has his hands full to dig in here and sort out this complicated world to get accuracy back out front again we have data that is spun and marketed for profit living out there and telling the difference sometimes between accurate and desired results gets gray. It’s more than just a CEO today to fix a lot of this and we have to look at data credibility and see what data is also mismatched and queried for the sake of selling more software too, is it relative with some of the claims to efficiencies claimed? Third party folks in the payer side are having those issues and I have written about some of them. I must have shook a few folks up recently as this post below struck a nerve somewhere in all of this as my DC tracking was heavy on it.

    http://ducknetweb.blogspot.com/2012/01/president-appoints-richard-cordray-as.html

      • Barbara Duck says:

        No I did not as I don’t it was posted yet but it sounds like my response is good over there too maybe:) Actually I do a website where we deal with and interview a ton of CEOs and I learn a lot by doing it. Its heavy biotech and some health IT as well with personal interviews with the CEOs;

        You get to hear from the horses’ mouth in their words so like anything some are all over it and some maybe not as much. Here’s the link and in the next issue of the Micro-Cap review magazine, which you can also read at the MedicalQuack, cover story will be about some money saving devices too.

        http://stocknewsnow.com/?page_id=1339

        I just created a Video Press Release site too for Micro-Cap companies that is just barely starting on a beta where CEOs can record or supply their own videos with a press release too but bear with if you go there as it has not been publicly announced yet but you can certainly look around.

        So when it comes to CEOs there’s a lot of opinions out there; however each one has their own special interest area and when you group all together you might end up with some pretty dynamite stuff. I touch a lot of different sides of healthcare anymore it seems with publishing.

  3. Charlie says:

    I don’t understand why #6 is so far down. So many employers use process optimization to improve the quality and reduce the cost of what they sell and then their employees go to these hospitals that are terribly inefficient places, delivering poor quality and uneven results. They wouldn’t stand for it in their business, but they don’t try to exert any pressure on the hospitals.

  4. sr says:

    Transparent PBMs! Haven’t heard of any – hope it’s real. I can’t think how they make a profit if they’re truly transparent – thanks for the link so I can check it out.

  5. John says:

    This is an interesting article but it seems a stronger argument that can made here is simply stating that ,either by directly or indirect measures, the government already controls nearly 75% of healthcare in the United States. To a great extent, it appears as though we are tricking ourselves by thinking a government run health system doesn’t already exist. Not only have the most recent statistical analyses of the CBO demonstrated the unsustainability of Obamacare, but now there is a growing wave of discontent among doctors and executives that are beginning to see how more governmental regulation (not incentives) will alleviate the rising cost of healthcare in the United States. (Can we extend this argument to the depletion of manufacturing jobs in the US)

    In any case, my point is that a primarily controlled government run healthcare system, which we already have, is failing. The solution lies in incentives not more controls. The wave keeps getting larger and larger.

    http://bit.ly/w5hOlK

    • Jonathan H says:

      John, that 75% number is polemical, not factual. In any case, by whatever standard you used, 100% of healthcare in other developed countries is government-controlled, yet they have costs that are half of ours, and the costs are increasing at a slower rate. I’m not sure if I want to say that your argument doesn’t make sense, or that you have no argument at all.

      • John says:

        Perhaps you might want to consult with some of the leading experts in Health Care Policy, regardless of their political affiliation and combine that with the new CBO numbers. Let’s stay on that track and see where it takes us. Place the money in the hands of government instead of the consumer.

  6. Kent McKinney says:

    Absolutely agree with the report. Regarding #2 Give Managers Incentives- I would recommend even more than incentives. Managing health related costs for employees should be line responsibility. Imagine for a moment that, say in a heavy manufacturing operation, plant managers were accountable for all costs; even employee health related inflation.

    Regarding #4 Disease Management Programs- don’t be fooled. DM companies which employ the same old “robo calls” are dinosaurs. One of my first initiatives was to get rid of such a company in our health plan, and I would do it again without hesitation.

    I would add a couple more strategies such as create supply side incentives for hospitals and physician. Investigate your hospitals and hold them accountable for such things as patient safety, post surgical infections and good outcomes.
    http://www.linkedin.com/pub/kent-mckinney/11/21b/173

  7. MG says:

    When you get past if companies actually really are interested in doing this (it doesn’t make sense for a number of industries/companies to invest in there employees long-term because of several factors), the large companies just don’t have the raw numbers of covered lives in a geographic area to really shift the needle in a meaningful way in the way providers behave in a local geographic area.

    GE found this out the hard way with there Bridges to Excellence program and other employer coalitions have run into the basic problem regarding critical mass at a local geographic area.

  8. John K. says:

    @Barbara Duck. I think the primary point of this article is that CEO’s and consumer’s themselves need to take accountability for the problem–Spin doctors exist inside and outside of government. Realigning fundamental incentives will do more for fixing these problems than equations or algorithms ever could.

  9. DeterminedMD says:

    You want to talk about CEOs, let’s look at the main CEO of this country, that guy who’s initials are BO, how ironic that is also the initials for Body Odor, and oh boy does the guy emit a foul stench from all his hypocrisy and focus on being a rock star, not a leader!

    The following link has an interesting paragraph I will highlight after the link:
    http://themoderatevoice.com/137340/pres-obama-takes-his-base-for-granted/

    In this piece from the Moderate Voice, a blog on alleged moderate and independent perspectives, which I don’t see really as it is much more democrat favored in pieces, said this:

    “Obama got away with the healthcare plan, which was bargained behind closed doors with private insurance and drug companies, manifesting a product that hasn’t kept costs down. He negotiated with himself, as he did on the stimulus, instead of using the majority he had in Congress to press the case for a public option that would have tackled healthcare costs, our biggest foe. It was never considered.”

    This says to me two things, which should embarrass any person who is interested in responsible and appropriate representation and yet does not call the POTUS on his joke term, the first being you negotiate with everyone who has a vested and fair position on an issue that affects most of the people you represent, and two, if you are revealed to be pandering to special interests and then blatantly lie you didn’t do so, your credibility is as as much valuable as the tangible pieces floating in a septic tank.

    All of you who just reflexively defend Obama and the ilk behind PPACA are at least pathetic, moreso liars in saying you represent the interests of the country, and worst are just selfish jerks who really don’t care how the legislation plays out, it is solely about your own gains and benefits.

    This election in early November is a moratorium, but the better term is a moron convention of clueless and soulless people who vote what told to do, not show independent thought and interest in the future of the country. And this site does NOTHING to make a difference for the better. Just more posts and platitudes of “pay no attention to the man behind the curtain”.

    Oh yeah, this man is too busy in front of it demanding applause for the fake show he thinks everyone is ignoring just to watch his dumb ass continuing to perform. And the Republicans basically set the bar for the ugly performance we watch now today!

    Politics? No, Pollack-tics!!!

    You want to banter about what CEOs can do to improve health care? They will take no example from the leader of the country, and let’s be real here, it is about money first, and paying for appropriate health care for employees will never be done right. Because every day we see there is no foresight and investment for future goals, it is about the bottom line today, by the end of business day. Which is why the business model will never work to provide effective health care!

  10. sr says:

    DeterminedMD, I appreciate your analysis of the President but would kindly ask you to be just as hard on the people with whom he should have been negotiating. Both (or all) sides are not looking at the whole truth; only what favors their particular point of view. There were some efforts in the early 2000s (and probably in decades before) to come up with a solution but those efforts have gone away, unfortunately. Bottom line – I think we have to start with the notion that there’s a global budget of some kind, and figure out where to go from there. Yes, there will be winners and losers, but we’ve come to a place where we won’t leave a man collapsed on the sidewalk to die, but will bring him to a hospital and treat him at society’s expense. It’s useless to blame that person; you will never get away from those situations! And we have created a system where there is much more treatment (futile or otherwise) that people will utilize if it’s offered and available. Scooters for everyone over 65! That doesn’t mean you need to have “govt run healthcare” – there are plenty of ways you can do that with the private sector delivering care. But you can’t have the govt paying for 1/2 of what’s provided and regulating the entire industry and setting prices for the private sector and have it be affordable for those who have to pay for it themselves (including employers). But you’re right – we would be better off if it could be discussed without all the hyperbole – from both sides.

  11. “But you can’t have the govt paying for 1/2 of what’s provided and regulating the entire industry and setting prices for the private sector and have it be affordable for those who have to pay for it themselves (including employers)”

    Why not? Works in every other developed country….. without having nurse Ratched dispensing mandatory Paxil at the factory gate (see #4 above).

    • sr says:

      Margalit, As far as I’m aware most other developed countries have a global budget for their govt-enabled healthcare expenditures, and are pretty good at balancing what’s available to all with how much is spent. I know many countries control the supply – ICU beds, dialysis units, surgeons and other specialists, and centrally or regionally controlling how much is spent on building hospitals and other expensive facilities. Here, the govt-paid benefit is open-ended, and all efforts so far to reign that in have failed. And this has made privately-funded healthcare expensive as well, as insurers often (usually?) follow CMS’s lead in what and how much to reimburse. I don’t think PPACA has helped, especially with enforcing a minimum benefit mandate. I don’t know what the solution will be, but I think it will come when the current system becomes just too expensive for a substantial segment of the population OR the states cannot absorb the increased cost of funding Medicaid for a much larger population.

  12. Barry Carol says:

    Regarding transparent PBM’s, there are four ways that PBM’s make money. They are (1) administrative fees, (2) rebates from drug companies, (3) the spread between the amount the PBM pays the retail pharmacy and what it bills the employer / payer, and (4) profits from filling mail order prescriptions for generic drugs.

    A transparent PBM, as I understand it, would make all of its money from #1 and #4 while passing drug company rebates back to employers and billing employers for drugs at the same rate that it reimburses retail pharmacies with no spread tacked on. Express-Scripts, by contrast, makes most of its money from #3 and #4 with #2 also contributing to a lesser extent. Administrative fees may often well be zero. Large PBM’s buys generic drugs directly from manufacturers and not from drug wholesalers. The crux of Express-Scripts’ dispute with Walgreen is about the size of the spread between what it pays WAG and what it chargers employers. Profits from drug rebates and retail price spreads are opaque. Administrative fees and, to a lesser extent, profits from mail order generics are transparent.

  13. southern doc says:

    5) making docs work for them for free

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