The United States spends over $3.6 Trillion on healthcare every year. It’s well studied and widely held that up to a third of all healthcare spending is pure waste – either we’re spending on unnecessary care that is harmful, provides no value, or both; or we’re overspending on care that is necessary. In short it is both a consumption problem and a unit cost problem.
The good news is that healthcare is already fixed. In pockets across this fine nation there exist ample examples of employers that have cracked the code and are spending up to 50% less on their healthcare bill than everyone else and they are providing incredible benefits to boot. Wise employers have discovered that the path to spending less is providing more. The even better news is that there exists a pattern. A common set of principles and strategies that these wise employers have adopted. The fixes are replicable. Employers that continue to struggle with their healthcare budget need not re-create the wheel but simply copy what is already working.
This series is going to share the practical, evidence-based approaches that are working across the nation today. Our objective is that you’ll have two big takeaways as you follow along this journey with us: 1) that the fixes to healthcare are not complicated and many are simple to execute today and 2) enormous potential exists by adopting these strategies for your employees, your business, and your community. This is not an either/or equation. It is a yes/and equation. Yes, we can drastically reduce our healthcare budget AND provide better benefits to our people.
Direct Provider Contracting
The first topic in our fixing healthcare series focuses on direct provider contracting: forming partnerships with care teams and patients as a direct link.
Most healthcare today is accessed through rented or insurance company-owned networks such as PPOs, EPOs, and HMOs. The result has been that the conversation about what providing a specific healthcare service costs has been between the insurance companies and hospitals. The employer has not only been removed from this conversation, the contracts are hidden from view and fiercely protected as proprietary.
This lack of transparency has led to wild price inflation in healthcare.
For inpatient care, hospital prices grew 42% from 2007-2014 while physician prices rose 18%
Insurance costs a family of four about $19,000 a year (up from ~$8,000 in 2001) – a huge component driving this number is hospital prices which accounts for nearly 30% of all healthcare spending. These price trends however, are largely arbitrary. In places where radical transparency exists, costs are significantly reduced and have largely remained flat over the past 20 years.
For example: The Surgery Center of Oklahoma has published their pricing since 2009 on their website. Prices have adjusted four times since then, in every instance the adjustment has been downward. The cost of surgery at their facility can be 75-80% less than your local hospital.
Or take Walmart’s new health and wellness centers where an annual checkup for a child costs just $20. There’s no extra money coming from an insurance carrier or elsewhere. It’s just $20.
Conclusion
Wise employers, however, have realized the margin and inefficiency that exists and have taken the steps to work directly with local care teams and health systems to agree on transparent and mutually fair prices for healthcare services. The result is employers paying as much as 60-70% less per unit on healthcare services consumed compared to the traditional PPO environment.
Paying less for healthcare is a great way to reduce health benefits spending and insurance costs.
