Hospitals: Managing Employee Health Costs Can Help Prepare for Value-based Care

Many provider organizations in the U.S. are unprepared to take on risk, especially when it comes to entering value-based care contracts or partnering with other healthcare organizations on population health strategies. According to recent research conducted by Numerof & Associates, just 17 percent of providers surveyed said their organization is “very prepared” to take on risk today. The report noted that some payers are reluctant to partner with providers that do not have the organizational competencies needed for successful population health initiatives. Hospitals that have made very little investment in building capabilities around care management and disease management face this credibility gap.
Similar to other industries, hospitals struggle to manage employee benefit costs. As employee health costs continue to rise they have a significant impact on hospital finances. Let’s face it, if a hospital can’t reduce the healthcare costs of its own employees how can it be trusted to reduce healthcare costs for government, commercial payers or large employers? For hospitals that are not ready to accept risk by entering into value-based care contracts, they can gain experience through their self-funded employee health plans. In other words, hospitals already take full risk for the cost of their employees’ health. By actively managing the employee health plan a hospital can achieve significant savings that can be used to fund the transformation to accepting risk (population health). For hospitals, their employees represent a controlled risk group that they are paying for and there is no additional downside risk or reputational risk with either payers or the public (CMS ratings). Also, this strategy can be used to overcome the credibility gap and demonstrate that the hospital is able to reduce its employee healthcare costs while improving outcomes, it can serve as a demonstration project for future business opportunities. We believe that this holds a lot of potential for hospitals that have been reluctant to pursue any population health strategies or even for those that have struggled with their population health initiatives.
One of the biggest roadblocks hospitals face in accepting risk and transitioning to value-based care is lack of quality data. Because hospitals have had their health plans in place for years they have access to years of data that can be mined to understand the risk profiles of employees/patients. This readily accessible data provides utilization patterns and includes where employees and their dependents receive care, what covered services are the most expensive, prescriptions, which individuals are the sickest and costliest to care for (that’s the big opportunity) and potentially which providers have gaps in care for the employees covered. Organizations also learn which providers are achieving desired outcomes and which are not. Therefore, when they move into assuming risk for other populations, these hospitals can leverage the data to create a care network to negotiate value based care contracts with payers and potentially other employers (including local governments).
This strategy allows hospitals to potentially fund the needed investments to prepare for value based care by achieving savings through lower benefit costs and productivity gains reducing the need for finding new sources of capital. Also hospitals are able to experiment with population health management strategies like care coordination, chronic disease management, and wellness designed benefits that provide the organization with the knowledge and skills to transition to value based contracts with payers.
To properly manage the health of its employees, a hospital has to also consider care provided outside of its walls. Analyzing its employees’ health data provides insights and intelligence on other providers in terms of both cost and quality. Hospitals have a lot of flexibility in terms of plan design to meet their goals, for example: they can assemble a narrow network of providers, a waiver of co-pay that incentivizes employees to use owned facilities rather than competitors. As important as the potential for realized savings; the intelligence on other providers can be extremely useful as hospitals seek to develop relationships with other providers to manage bundled payments, develop an ACO or other shared savings arrangements.
Beyond the potential savings from lower costs and improved productivity, the institutional learning will be key for participation in ACO and other population health initiatives. At the core of value based care is care management, which encompasses a cultural shift from the focus on periodic, acute care visits to a more comprehensive view of managing care for employees with chronic disease and complex conditions. The management of employee health is about identifying and engaging employees to be concerned about their own health and then navigating them through the system to achieve the best outcomes at the lowest price. Three capabilities required are: enhanced care coordination, data analytics, and employee/patient engagement.
By applying a proactive approach to managing the health of employees, hospitals can identify high risk employees and develop chronic disease management programs and preventive programs. Hospitals that use population health management techniques to manage their employees’ health will be ahead of the curve as the industry continues to push forward towards greater risk taking under value based reimbursement. Utilization review programs and population health tools can be tested and perfected and the cost can be absorbed through benefit savings which are more economically efficient. If properly executed, these programs and tools would then be used by the hospital to negotiate shared savings contracts with large employers and payers.
Given the slow transition from fee for service to value based payments, by adopting a population health approach to its employee healthcare costs a hospital can begin the transition without the negative impact on revenues and financial stress associated with lower utilization. In addition, this strategy allows hospitals to develop and acquire the expertise and competencies needed to be viable under a value based care model.
Some eye opening facts:
  • According to an October 2012 study co-authored by Dr. Bill Bithoney, managing director in The BDO Center for Healthcare Excellence & Innovation and published by Truven Health Analytics: Healthcare costs for hospital employees and their dependents were 9 percent higher than costs incurred by the general U.S. workforce. 
  • The Truven Health research study further stated that health benefit costs consume 4 percent of hospital operating revenue, and for the average medium-sized community hospital, 68 percent of operating profit is consumed by healthcare benefits for employees and their families.
  • A Thomson Reuters’ two-year comparison of health data comparing paid claims and utilization of 1.1 million hospital workers to 17.8 million workers in all industries, through the 3rd quarter of 2010, showed that hospital workers have higher levels of claims by double digits than all industries in four out of five categories.
  • According to the same Thomson Reuters data, not only are the prevalence rates of six common chronic disease states higher for hospital workers, the use of the emergency department (ED) and hospital admission rates are higher as well. This suggests a troubling dual pattern of poor health and high utilization of expensive healthcare services.
According to a story produced by the Kaiser Family Foundation in collaboration with the Washington Post on October 7, 2013, they reported that for 2010:
  • The costliest one percent (1%) of patients account for twenty-one percent (21%) of U.S. health spending in 2010, or nearly $88,000.
  • The costliest five percent (5%) of patients accounted for fifty percent (50 %) of all health-care expenditures.
  • The bottom fifty percent (50 %) of patients accounted for approximately three percent (3%) of spending that year.
Applying these or similar statistics to hospital employees, one can see how intensively managing the care of the most expensive five percent has the potential to reduce costs substantially as well as reduce absenteeism, improve productivity and employee engagement. Segmenting a patient population is the foundation for devising effective care management and employee engagement programs. Historically payers have been reluctant to share claims data with hospitals for services that patients receive outside of the hospital. Under the employee health scenario we are proposing, the hospital has access to complete claims data which its teams can mine to stratify the population and identify high risk individuals. Managing employee healthcare is a sensible way for hospitals to reduce costs and if done thoughtfully can help hospitals fund their transition to value based care.