Has the time finally arrived for value-based benefit shopping?

On one hand, this pandemic will be remembered for the significant loss of life, the lock-down, the major economic hit, and the resulting mental health havoc. On the other hand, it will also be remembered for the acceptance that we need dramatic changes in our healthcare system, the increased adoption of telemedicine, and the realization for employers that their healthcare costs which were always surging will now approach the brink of unsustainability.

The problems facing the healthcare system and the challenges facing employers are tremendous and require transformational change across the healthcare continuum. The same old tired solutions we’ve had in place historically have got us to this point. We have a sustainability crisis across the healthcare continuum, and it is imperative that we meet the moment.

Challenges across stakeholders in the healthcare continuum

1.     Health insurers are projecting that their COVID-19 related costs could be as high as $556 Billion in 2020 and 2021, accordingly to a recent study commissioned by AHIP.

2.     Employers are going to be faced with premiums that are projected to rise by almost 40% in some parts of the country (NYT article on 3.28.2020).

3.     When tabulated, the total cost of healthcare in 2019 is estimated to average $14,800 per employee according to SHRM. Health benefit costs are increasing at twice the rate of wage increases and three times that of general inflation. These numbers were projected before the onslaught of COVID-19.

4.     We know there is a mental health tsunami staring us in the face that has the potential to consume us for years together, long after COVID-19 is behind us.

5.     Hospitals and health systems are struggling financially. To put this in perspective, average operating margins for health systems declined by 38.7% between 2015 and 2017 with operating revenue falling to 5.5% in the same time-frame, according to a study published by Navigant Consulting last year. This pandemic will significantly exacerbate these financial challenges for hospitals and naturally result in a sustainability issue for some and a degradation of clinical outcomes for others.

The impetus for an accelerated transition to value-based care

The transition from volume to value has historically been driven by either the government (CMS) or by insurers with very mixed reviews, adoption, and results. Demand and adoption which should ideally come from buyers has not happened. This is because value-based care has remained a healthcare industry construct. The criticality of moving away from an antiquated volume-oriented healthcare system to a value-based one has never been clearly explained to buyers of healthcare benefits. If the end buyer (employer) or the benefit consultant doesn’t demand a change, there is very little incentive for the benefit managers (health plans, PBMs, etc.) to engage in a value-oriented conversation.

This leads me to some critical questions about a post-COVID world:

1.     Will the surging and unsustainable healthcare costs accompanied by a predictably long cost tail, now force employers and benefit consultants to adjust their buying patterns?

2.     Will these “benefit shoppers” now demand to contract for healthcare benefits with benefit managers based on value vs. volume, i.e. value-based contracts?

3.     Has the time finally arrived for value-based benefit shopping?

If the answer to these questions is a “yes”, then we may finally be entering an era of transformational change across our healthcare system. If the answer is a “no”, then our lack of inertia will further impact an already significant sustainability crisis and unquestionably come back to haunt us.

What are the systemic changes we should expect to see?

1.     Health Systems - COVID-19 has reminded us once again that healthcare is local. Over the last decade as hospitals and health systems faced shrinking margins and value-based contracts from health insurers, we saw two distinct trends:

• Significant M&A activity where health systems attempted to grow bigger via acquisition to defray their operating costs – bigger has not necessarily made them better or smarter.
• A smaller subset of health systems entered the insurance fray and attempted to build lightweight integrated delivery networks (payer + provider) with the assumption of some risk.

Hospitals are the lifeblood of our healthcare system and COVID-19 has firmly reminded us that their evolution is paramount. Now is the time for hospitals to finally realize that the only way to get back to high levels of profitability is for them to control both sides of the health dollar, i.e. they need to more aggressively move towards a model where they are both the insurer and the provider. This will especially resonate in local communities where people will not only come to their community hospitals for their healthcare needs but also carry a health insurance card with the hospital’s brand.

2.     Health Insurers – Health insurers have been pushing hard for value-based contracts with providers (hospitals, physicians, etc.) that include improved financial and clinical outcomes. That push needs to continue and significantly accelerate. As health systems hopefully are more amenable to moving towards becoming integrated delivery networks (#1 above), health insurers should step up and assist these health systems in building insurance capabilities and effectively augment their existing clinical capabilities with administrative and risk management capabilities. Joint payer-provider strategies should be on overdrive coming out of this COVID-19 situation.

3.     Pharmacy Benefit Managers (PBMs) – Most PBMs today offer either a traditional model or a pass-through one. Both models are volume-based, antiquated, and have driven an unsustainable pharmacy cost trajectory. Both models, whether a traditional black-box or a transparent one, are predicated on higher volume and the dispensing of higher-cost drugs with higher rebatability. Driving to the lowest cost in tandem with the most appropriate clinical outcomes are secondary considerations at best. The thought that cost transparency equals value, does nothing for the buyer’s bottom line, and continues to showcase a complete lack of creativity. As an avid shopper at Amazon and Costco, the value I get is knowing that I can get low-cost products, the first time and every time, and with predictably high service quality. Knowing their acquisition costs adds zero value to me. What is needed in this market where Rx costs are growing at an incredibly fast pace are more value-based PBMs, that guarantee hard savings, drive towards the lowest cost, take downside risk on their guarantees, and then back it all up with a very high degree of savings transparency.

4.     Behavioral Health Benefit Managers – The mental health crisis coming out of the COVID-19 situation will be the single largest driver of healthcare spend for the next decade, if not longer. A combination of anxiety and depression will drive a host of physical and mental health conditions, that will continue to dictate employer-based people strategies around employee well-being, productivity, presenteeism, etc. for the foreseeable future. At a time like this, it is imperative that employers engage their employees differently, try squashing the stigma that is the need for mental healthcare, and consider benefit managers that have a broad telemedicine network that includes mental health providers, social workers, etc. who are able to address specific employee needs. Ease of access to mental health services and in an engaging multi-modal fashion for employees will define value.

The Value-Based Benefit Shopping Checklist for Buyers (Employers and Benefit Consultants)

1.     Healthcare costs and premiums are going to continue to soar at an incredibly high rate; look for solutions that will guarantee cost savings and trend management, and then hold the benefit manager financially accountable for those guarantees, i.e. putting their money where their mouth is.

2.     Look past historically “normal” and uninspiring solutions that have either existed for a long time or are being repackaged and called something else – these are not normal times and the same old tired solutions are not going to get you anywhere.

3.     Encourage solutions from benefit managers that steer towards community-based and local destinations, i.e. community hospitals and local pharmacies, and then incentivize your employees to access those local healthcare providers via your benefit plan designs. Healthcare is local and your employees and their wallets will thank you for making their local healthcare providers more affordable.

4.     The challenges coming out of COVID-19 are going to be overwhelming by themselves without having to deal with the sub-optimal service patterns from your benefit managers as well. Don’t allow the same old lousy service from your benefit managers go unchecked – health plans and PBMs should be on overdrive right now to ensure that they are providing white-glove service to patients, clients, and benefit consultants. Service is a vital aspect of value-based benefit shopping.

5.     The patient will always be at the center of healthcare, irrespective of the innate B2B nature of our healthcare system. When we say, COVID-19 decisions should be scientifically based, the same applies to your benefit shopping as well. The benefit management solutions that you purchase should be evidence-based, clinically robust, and obsessively focused on ensuring the health and well-being of your membership.

Conclusion

Buying the same, old-world solutions, for new-world healthcare problems only puts the spotlight on Einstein’s definition of insanity – trying the same things over and over again, and expecting a different outcome. Healthcare benefits shopping must be the driver of the next generation of transformation in our healthcare system. For this the buyers need to get engaged in the conversation and demand change. When buyers put a stake in the ground and hold their consultants and service providers responsible for value-based benefit solutions, we can finally expect to see value-based healthcare live up to its promise.