In my last post, I described the nightmare that CEOs in America face when dealing with employee health costs, which have become the third-largest expense in business. I also promised to outline the simple steps that CEOs can take to rein in these spiraling health costs.
My first suggestion is to employ a tried and true management technique that every CEO learned in business school — one that gets economic incentives working for you rather than against you. I’m referring to the old adage: If you want to achieve a business objective — be it launching a new product or reducing employee health costs — you need to incentivize your managers to help you succeed.
Yet, I doubt there’s a CEO in America who offers bonuses or other incentive pay to the HR and benefits managers who can most effectively reduce these crippling employee health costs.
Why not? Isn’t that just basic Management 101?
Ironically, incentivizing your HR and benefits managers doesn’t cost you any money, it doesn’t require an outside consultant, and it can happen in a matter of minutes regardless of the size of your company. Just tell your HR and benefits managers that if they manage to reduce employee claims costs or the cost of your company health plan (but not its benefits), you’ll give them a financial reward.
Giving a piece of any savings in health costs to the people who can make it happen is just common sense — no different in essence from paying a higher commission to your best salespeople.
A trio of groundbreaking publications on healthcare came out this April. They are my required reading list for CEOs. First is a study published in last week’s Journal of the American Medical Association (JAMA) by Eappen and colleagues (including among them Atul Gawande). The study found infections occurred in 5 percent of all surgeries in an unnamed southern hospital system. For U.S. hospitals, this is not an unusual rate of error — even though it is about 100 times higher than what most manufacturing plants would tolerate. No automaker would stay in business if 5 percent of their cars had a potentially fatal mechanical flaw.
If that’s not bad enough, the second finding is where we enter the realm of the absurd: according to the study, purchasers paid the hospital to make these errors. Medicare paid a bonus of more than $3000 for each one of the infections; Medicaid got a relative “bargain,” paying only $900 per infection. But the real chumps were the commercial purchasers (CEOs, that’s you). Employers and other purchasers paid $39,000 for each infection, twelve times as much as your government paid through Medicare. Most companies could create a good job with $39,000, but instead they paid a hospital for the privilege of infecting an employee. How many good jobs haven’t been created so businesses can pay for this waste?
Most employers are far more hard-nosed about managing their purchase of, say, office supplies than they are in purchasing health care — even though, unlike healthcare, paperclips never killed anyone and no stapler can singlehandedly sap a company’s quarterly profit margin. Yet, according to the Catalyst for Payment Reform, only about 11 percent of dollars purchasers paid to healthcare providers are tied in any way to quality. The results reflect this neglect of fundamental business principles for purchasing: Quality and safety problems remain rampant and unabated in health care, while employer health costs have doubled in a decade. Continue reading…
Technology is transforming health care in many ways. CEOs of health care businesses think the biggest transformation in the next few years will come from making patients, doctors and health-care workers more communicative and collaborative.
They foresee patients with the same rare diseases coming together in online social networks where they can discuss their symptoms. They see overweight consumers building mutual support networks to share diets and praise exercise. They anticipate that knowledge will be shared so that nurses, pharmacists and social workers can often perform tasks that today are handed to doctors by default.
Every year, IBM surveys hundreds of CEOs from around the globe about a variety of issues. Among 1,700 CEOs surveyed this year there were 58 who head hospitals, medical practice groups and insurers.
The CEO perspective is interesting, because most outsiders don’t think of collaboration as being a key outcome of medical technology. Most of us think of laser-guided surgical instruments or designer drugs or computerized analytics that spot hitherto unnoticed disease-causation chains.
The CEOs overall see technology as a way to open up their organizations to create value through collaboration. Making the organization more transparent makes it easier to share cultural values and goals. And that makes employees more receptive to tough changes, because they understand what’s behind the plan.
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.