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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.

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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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new commercial construction projectsCure AcneRossDaryl GrossKathryn Sias Recent comment authors
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new commercial construction projects
Guest

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!

Cure Acne
Guest

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.

Ross
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Ross

The content in this blog really is credible.When going for a comparison between the costs involved there are many other options to think about. INDIA is a country that has all the fine qualities to promote MEDICAL TOURISM with its seamless service
and wider range of surgical options. INDICURE is a limited company in India offering customized health care services for medical tourism in coordination with support services of accommodation and transportation.INDICURE offers hip joint replacement surgery

Daryl Gross
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Daryl Gross

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.

Margalit Gur-Arie
Guest

“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.

Nate
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Nate

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… Read more »

rbar
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rbar

Nate, “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… Read more »

Barry Carol
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Barry Carol

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.

Kathryn Sias
Guest

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.

Kathryn Sias
Guest

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.

Margalit Gur-Arie
Guest

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….

Nate
Guest
Nate

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%… Read more »

Margalit Gur-Arie
Guest

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
Guest
Barry Carol

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… Read more »

Margalit Gur-Arie
Guest

Barry,
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.