Walmart Moves Health Care Forward Again

Walmart Moves Health Care Forward Again

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Walmart’s sheer size makes almost any of their initiatives newsworthy. That said, despite being a lightning rod for criticism on employee benefits and health care, they have introduced initiatives with far-reaching impacts. Their generic drug program began in September 2006 – more than 300 prescription drugs for $4/month or $10 for a 90-day supply – and was widely emulated, disrupting retail drug markets and generating immense social benefit. Imagine the difference it made to a lower middle class diabetic who had been paying more than $120 per month for medications, and suddenly could get them for about $24.

Yesterday Walmart announced that “enrolled associates” – covered workers and their family members – needing heart, spine or transplant surgeries could receive care with no out-of-pocket cost at 6 prominent health systems around the country: Mayo Clinics (Rochester, MN and Jacksonville, FL); Cleveland Clinic (Cleveland, OH); Geisinger Clinic (Danville, PA); Mercy Hospital Springfield (Springfield, MO); Scott & White Memorial Hospital (Temple, TX); and Virginia Mason Medical Center (Seattle, WA).

Walmart’s Center of Excellence (COE) program builds on its own and other organizations’ pioneering efforts with similar programs. Walmart developed a relationship with Mayo Clinics in 2007 for transplant and lung volume reduction surgeries. In March 2010, Lowes reached a similar arrangement with Cleveland Clinic for heart surgeries and, last December, Pepsico announced a global pricing deal with Johns Hopkins for cardiac and joint replacement surgeries.

It’s worth asking why these large firms would bother to do these deals for expensive care, and what this means for health care in the future. What’s different about the health systems that have been involved? Could these arrangements catch on and influence care elsewhere around the country?

The procedures involved are typically complex and high cost. Because they provide health coverage for more than a million people, Walmart has accumulated tremendous data and experience, and they are famous for their analytical acumen. They know that these kinds of treatments, though relatively infrequent, consume disproportionately high resources.

All of the organizations contracted in these arrangements have developed reputations for high quality. It’s worth noting that the unit pricing of their services can be high, but their episodic costs tend to be low. Their specialists are salaried, and therefore have no financial stake in ordering unnecessary services. And, in the words of a colleague knowledgeable about these efforts, “because they use evidence-based vs. money-driven care, they tend to get the diagnoses on complex cases right the first time. They also coordinate care and are more likely to be accountable than other systems.”

The press release also noted that Walmart’s COE program is “working with all the health care organizations to collectively share best practices that will allow collaboration around best measures of service and new industry findings in comparison to industry practices.” Think about that. Absent a health care environment that, as a practical matter, actively shares and translates evidence into practice, the purchaser, out of enlightened self-interest, has incorporated this process as a cornerstone element of its program.

One of my correspondents, a physician practicing at an academic medical center, commented on yesterday’s news:

“I recently reviewed … Texas hospital data. It is quite striking how Scott & White has markedly lower costs than most other equally sized Texas hospital systems while also hitting high marks for quality. I’d love, personally, to be able to take this press release to the head of our clinical practice and ask how we plan to compete in the future.”

He’s right. Health systems and specialty groups in the US have operated completely outside conventional market forces for decades, a fact that largely explains US health care’s egregious cost, highly variable quality and rock-bottom value relative to health care in other industrialized nations. As the market becomes more cost-weary and price-sensitive, purchasers will follow the leads set by Walmart, Lowes and Pepsico. They’ll align with organizations that can measurably demonstrate better care at lower cost.

As market forces take hold, success will be associated with driving appropriateness, and with accepting lower per patient revenues in exchange for more market share and greater patient volumes. Growth will come at the expense of entrenched, less agile competitors.

The big winners here will be patients, who will be subjected to significantly less unnecessary risk associated with overtreatment, and purchasers, who will receive far better value at lower cost.

Health care organizations should not underestimate the significance of Walmart’s COE program. It is one of many signs suggesting that, after 40 years of being impervious to market forces, the health care bubble could burst. All it would take to change health care as we have come to know it is for more employers to collaborate and follow Walmart’s, Lowes’ and Pepsico’s leads. They would stop doing business with health care organizations that are unaccountable and don’t provide measurable value, and transfer that business to those that do.

Brian Klepper, PhD is an independent health care analyst and Chief Development Officer for WeCare TLC Onsite Clinics. His website, Replace the RUC, provides extensive background on the role that the AMA’s RVS Update Committee has had on America’s health care cost crisis.

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64 Comments on "Walmart Moves Health Care Forward Again"


Guest
Autologous BMT
Jan 20, 2015

Just had my BMT at Mayo, and I did NOT have all my out of pocket expenses covered. There was NO choice. I either traveled over 1000 miles to have the transplant (without my family, you are only allowed one caregiver) or the transplant would not be covered.

I could have had the transplant here at home in Boston, and Brigham Women’s even offered to match rates, but Walmart refused. I was willing to pay out of network copy’s or deductibles, but still refused. I gave up seven weeks of my life away from my kids and loved ones, but I will NEVER do it again.

I think the benefit of treatment at Mayo may be positive, but making it the ONLY option with no choice is not fair.

Guest
Mar 29, 2014

LOL! That was really funny!

Guest
Jan 4, 2014

LOL! That was really funny!

Guest

Hello! This is my first comment here so I just wanted to give a quick shout out and tell you I really
enjoy reading through your articles. Can you recommend any other
blogs/websites/forums that deal with the same subjects?

Thank you!

Guest

I was wondering if you ever thought of changing the structure of your blog?
Its very well written; I love what youve got
to say. But maybe you could a little more in the way of content so
people could connect with it better. Youve got an awful lot of text for only
having one or 2 images. Maybe you could space it out better?

Guest
Apr 15, 2013

yeh, i agree to Walmart things are initiative. I don’t think people go for other alternative.. However it depends up on their individuality Right? Walmart health care system is good but not for all the people who don’t trust their service. They also look for profits in the market view, or they want to help the people really? The Diabetic treatment also .. read here if you want http://slimfaststayfit.com/lose-weight-and-fight-diabetes/ more expensive.. but how would they spend on it?

Guest
Shaylynn Derouchie
Dec 1, 2012

It will be interesting to see what happens in the future. I am hopeful that the walmart innitiative will be beneficial for all involved. I am sure people will create something else, especially if they don’t like what Walmart is doing. I was recently posting about creating a Walmart Healthcare system, but I wasn’t literally meaning Walmart owned Healthcare System. I do wonder about walmart buying out all healthcare systems and is this something they financially would want to do? I am thinking they are seeing a market and trying to fill the gap of our current healthcare system.

Guest
Barry Carol
Oct 22, 2012

Margalit –

What you describe sounds to me like standard fee for service Medicare for all with a different price setting mechanism than Medicare’s current administered or dictated prices. One thing virtually every expert agrees on is that there is not much hope of controlling costs unless and until we can move away from the fee for service payment model. I also don’t care for the idea of reimbursing a doctor just recently out of residency training at the same rate as a 20 or 30 year veteran or paying an average surgeon the same as a superstar.

Even the Swiss admit that they don’t have a good handle on the quality of care across their system. They think it’s pretty good but they can’t demonstrate it with reliable data. Lower costs in Europe are also attributable to several important cultural differences as compared to the U.S. First, Europeans are more accepting of death when the time comes. They’re much less likely to demand a full court press even when the prognosis is hopeless. They’re also less litigious so defensive medicine isn’t nearly as big a factor in driving up costs as it is in the U.S. I suspect but can’t prove that there is also less fraud which I would attribute to their culture of solidarity which implies that fraud is stealing from their fellow countrymen not just from insurers or “the government.” Finally, prices per service, test, and procedure are lower, in part, because doctors earn less money than their U.S. counterparts and drug prices are lower because governments are willing to use formularies or reference pricing or both. Also, I suspect that U.S. hospitals have significantly more employees per licensed bed than European hospitals do. Since wages and benefits are, by far, the largest component of hospitals’ cost structure, they have to charge more to break even without even considering the issue of recovering the cost of providing uncompensated care to the uninsured and underinsured.

Guest
Oct 22, 2012

I agree with rbaer.
I have no idea how the “expert” consensus on the evils of fee-for-service came to be, but I would suggest that it is not evidence based and it is theoretical at best, or most likely driven by ulterior motives.

Since you mentioned Germany and Switzerland above, Barry, and let me add France and to a large extent Canada, obviously lower costs can and are achieved by systems operating with a fee-for-service model.
The problem lies elsewhere, and that elsewhere may be a bit more uncomfortable for those who profit from health care to address.

Guest
rbaer
Oct 22, 2012

“One thing virtually every expert agrees on is that there is not much hope of controlling costs unless and until we can move away from the fee for service payment model.”

I don’t think I am the only one feeling that the cost explosion can be at least in part controlled by adjusting the medicare fee schedule (and private insurers likely will follow). Not only is it obvious, but it has been empirically demonstrated that certain well paid surgeries are overutilized due to the financial incentives. Pay a surgeon’s hours doing surgery approximately the same as a surgeon – or, say, a rheumatologist – doing a consult (yes, there should be some adjustment for risk and expertise, but consultations are also risky), and patients will be operated based on need and expected benefit. In my specialty, there is an FDA approved injection procedure that is paid about 5 fold as well as seeing patients in office consults – no wonder that this mildly effective therapy is taking off.

Quality of care and outcome parameters are hard to measure, and while I don’t say it’s impossible to assess them, there will be certainly unintended consequences by all these pay for performance efforts (incl but not limited to doctors cherry picking patients and avoiding higher risk, and even seeing indications for milder disease in younger patients because their outcomes will be likely great). I don’t want to sound naive, but let me stress professionalism: most doctors at least start their carreers by wanting to do the best for their patients and taking pride in their work – I believe that overly uneven financial incentives considerably distort their motivations and medical professionalism in general.

Guest
Oct 21, 2012

Yes, Barry, that’s what I have in mind. Efficiency is rewarded by larger profit margins per service for efficient providers and quality is rewarded by larger volumes, assuming information is widely available.

I somehow am having a hard time understanding the relentless drive to narrow people’s choices by putting all sorts of corporate constructs in charge of making decisions. It flies in the face of all the patient-centered and consumer empowerment rhetoric., and I for one would appreciate a little honesty brought back into the national conversation on health care.
Not to mention that gated networks will by definition be better for those who can pay more and I don’t like that either.

Kaiser is an outlier and I have the same level of discomfort with vertically integrated systems as I have with the British health system. Physicians should be independent enough to serve as effective advocates for their patients, particularly when money is short and greed is looming large.

Guest
Barry Carol
Oct 21, 2012

“I just don’t see an alternative to government stepping in to facilitate fair negotiations and a leveling of the playing field.”

What exactly does that mean and how would it work? The Swiss and German model is that insurers negotiate as a group as do providers so everyone receives the same rate for the same service in a given area. Is that what you have in mind? If so, I don’t know how superior quality and efficiency gets rewarded. It would also require an anti-trust exemption for both insurers and providers.

“there aren’t enough people covered by large self-insured employers to affect the market”

Actually, of the 150-160 million people who get their health insurance through an employer, roundly 60% are now in self-funded plans. Full risk, as opposed to fee based members, have been declining for a number of years now as more firms and government entities self-insure. By contrast, Medicare has 48 million people in its program about 25% of whom are in private Medicare Advantage plans. Medicaid has about 55 million people in the various state programs but over half of them are children.

I think there are more than enough people in self-funded plans to ultimately affect the market. On its most recent conference call, United Health management said that 18% of its hospital contracts now incorporate some form of pay for performance and the concept is starting to gain traction so that this percentage is likely to grow rapidly over the next five years or so. This includes everything from shared savings to bundled pricing to ultimately partial and even full capitation.

An alternative scenario is that if ACO’s ultimately prove successful, we might wind up with the equivalent of two Kaiser’s in each regional market except for the major cities which might have three or four Kaisers.

The bottom line is that there is a lot going on in healthcare and health insurance now and the industry landscape is likely to look a lot different in 5-10 years.

Guest
Oct 21, 2012

Referring doctors, Barry?
If all goes as planned all referring doctors will be “owned” by these hospital systems very very soon. They will refer where they’re told to refer.

Private insurers have no financial incentive to reduce whatever falls under the MLR and there aren’t enough people covered by large self-insured employers to affect the market. Medicare and Medicaid could try, but I can already hear the screaming, and most of it would be justified.

I just don’t see an alternative to government stepping in to facilitate fair negotiations and a leveling of the playing field.

Guest
Barry Carol
Oct 21, 2012

Margalit –

There is a little bit of common ground here in the area of price regulation. While I’ve never been in favor of government just dictating prices, I do think that for care delivered under emergency conditions, hospitals should not be allowed to charge more than the lesser of some reasonable percentage above Medicare (120% perhaps) or the lowest rate that they accept as full payment from any in network insurer with whom they do business.

Maggie and southern doc –

With all due respect, if well regarded but very expensive medical centers in places like NYC, Boston, Washington D.C., Los Angeles, San Francisco, Houston, Chicago, etc. start to lose profitable surgical business to centers outside of their home region, wouldn’t you expect them to respond with lower prices to keep or reacquire the business? Patients would certainly prefer not to have to travel and hospitals know that the sophisticated surgical procedures account for a disproportionate share of their profits.

Finally, I suspect that as much as 65%-70% of revenue generated by the well known medical centers is for medical, as opposed to surgical, care that community hospitals can probably handle just as well. I’m referring to problems like frequent admissions for patients with congestive heart failure, patients with asthma or COPD, nursing home patients who fall and need to be checked out, pneumonia cases, low risk labor and delivery, common cancer treatments, routine general surgery, etc. This also includes all of the outpatient labs, imaging, colonoscopies and other common procedures that, by definition, need to be scheduled in advance. There is no reason why the expensive big name hospitals can’t be put in an insurer’s non-preferred tier for all of that care while placing them in the preferred tier for the sophisticated surgeries and treatment for rare types of cancer and organ transplants that they really are the best at. At the same time robust price and quality transparency tools should be able to help referring doctors steer patients to the most cost-effective high quality providers.

Guest
southern doc
Oct 21, 2012

You’re welcome. Feel free to use it!

One has to assume that, even at reduced rates, Walmart will be paying more than Medicare and Medicaid. This will allow Mayo and the others to bump these low-paying patients onto wait lists, and deal with younger, healthier patients without worrying about re-admission penalties, etc.

Guest
Oct 21, 2012

Southern Doc & Bobby G.–

Southern Doc–

I realize that often you and I disagree, so I wanted to be sure to say “thank your” for the analogy.

(I also agree with you about charter schools. My daughter teaches in the public school system in NYC and teaches many low-income kids.)

No question, there is a shortage of good teachers and good surgeons outside of the high income ziips.

Bobby G.–

I agree– this has been a v. good thread.

Guest
southern doc
Oct 21, 2012

Makes me think of charter schools: the most motivated students/best-insured patients are pulled out of the pool and sent to schools/hospitals that have the ability to select who they educate/who they operate on. Not to mention that there’s already a shortage of good teachers/good surgeons outside of the high income ZIPS that will worsen with this plan.

Great for the happy few, but bad news for the students and schools/patients and hospitals left behind.