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Employers Can’t Fix U.S. Health Care Alone

Published January 12, 2021, in the Harvard Business Review. Reposted with permission.

Hopes ran high when Amazon, JPMorgan Chase, and Berkshire Hathaway formed Haven three years ago to disrupt American health care. Finally, some of America’s most powerful and innovative companies were going to unleash free enterprise capitalism on our bloated, inefficient, under-performing health care sector. The recruitment of surgeon Atul Gawande, one of America’s leading physician thinkers, to run the project added to the excitement. This was truly the dream team of private health care reform.

But it failed.

The Haven story should be the subject of deep future study in business schools and health policy programs. Some lessons, however, should already be apparent.

First, as previously noted in an article by John Toussaint and an earlier piece that colleagues and I wrote, the fundamental problem facing private purchasers of health care is lack of market power. Though they collectively purchase insurance for over half of Americans, individual companies — and even small groups of companies as big individually as Haven’s sponsors — lack the leverage in local health care markets to force change on resistant local health care providers. There may be rare exceptions in company towns — Amazon’s home in Seattle might qualify — where a particular firm provides enough health care customers that hospitals and health professionals can’t ignore its demands. But company towns do not add up to a health care revolution.

Second, employers that want to reform health care often have to ask employees to change how they get their care. For example, they may restrict workers and their families to using selected lower-cost doctors and hospitals in their communities or require that employees travel long distances for specialized services (like joint replacement or cardiac surgery) at more efficient centers of excellence. These reforms can be a nightmare for employee relations, especially among unionized workforces. For some employers, the savings are just not worth the aggravation. Whether or not this figured in the Haven experience, it remains a fundamental obstacle to employer efforts to reform health care markets.

Third, with rare exceptions, employers have trouble getting their heads around the complexities of non-intuitive, highly regulated, provider-dominated health care markets and the complicated changes — paying for value, capitation and sub-capitation, upside and downside risk, tiered provider arrangements, reference pricing, drug formularies — that lie at the heart of many health care reforms. When the Haven story is told, one finding may be that executives from Amazon, Berkshire Hathaway, and JPMorgan Chase lost patience with the difficulty of implementing the innovations proposed by their Haven staffs and demanded rapid changes that their experts did not consider feasible or useful. This may explain the high levels of turnover in Haven personnel before it closed.

It remains possible that private sector purchasers of health care will be able to make important positive reforms in health care delivery. One approach is the formation of very large regional employer purchasing coalitions that act together across large geographic areas to negotiate better prices and more efficient, high quality services from local providers. Such groups sometimes coalesce around state and municipal employee groups. However, even where such coalitions have emerged, they’ve often encountered problems because they require joint action on the part of large numbers of diverse employers who have nothing else in common and are preoccupied with the daily challenges of keeping their core businesses afloat.

All this suggests that the overriding lesson of Haven’s failure is that if employers wish to make the health care sector perform better for their employees, they will have to ally with the one purchaser that has market power everywhere and that has successfully implemented fundamental changes in health care payment and delivery: the federal government and its Medicare and Medicaid programs. The employer community can contribute to the development of new policies within Medicare and Medicaid by studying, commenting on, and politically supporting major changes in the way these programs operate. Once implemented, these changes benefit employees who use the same providers as federally insured individuals.

A blueprint for such reforms exists in the recently published Commonwealth Fund Task Force on Payment and Delivery System Reform. Drawing on the best available evidence and the experience of diverse experts from the public and private sectors, the task force identified six broad imperatives for reforming health care payment and delivery and over 80 specific recommendations for change. The six imperatives are:

1. Increase delivery system preparedness for health disasters. The Covid-19 experience has shown that our health care system is not prepared for major disasters, including pandemics, which, unfortunately, may very well recur.  Creating the necessary information systems, governance structures, and surge capacity in local health care systems is vital to the welfare of all residents, including employees of local companies.

2. Increase health system accountability for health care quality, equity, and cost. Measuring and rewarding good performance or penalizing poor performance among health care actors — including insurers, hospitals, and clinics — is vital to improving U.S. health care.

3. Strengthen the nation’s primary health care system. Primary care is critical to maintaining health and caring for chronic illness. The U.S. system sorely lacks adequate primary care, which reduces the quality and increases the cost of care. Part of the solution is increasing the compensation of primary care providers.

4. Support empowerment and engagement of people, families, and communities. To function as informed consumers, patients and their families need better information on the price and quality of care, and health care systems need to be more responsive to their customers’ needs and desires.

5. Reduce administrative burden. The U.S. health care system spends huge amounts on administration. Cutting this waste starts with simplifying and standardizing insurers’ complex billing systems that confound doctors, patients, and hospitals.

6. Encourage a balance of regulatory and competitive approaches to promote a high-performing health system. Consolidation among hospitals and doctors and lack of price transparency are just two of many obstacles to effective competition in local health care markets. Paradoxically, more government involvement may be necessary to give competition a chance to improve health system performance.

The detailed recommendations task specific actors and agencies in the federal government with changing the way they pay for care, how they regulate the anti-competitive behaviors of providers that unduly increase prices in some markets, how they compensate primary care providers to assure an adequate supply of primary care, how they can combat inequity in health care delivery, and much more.

Our employer-based approach to providing health insurance is an accident of history that, despite its success in covering workers and their families, is showing its fundamental limitations. Haven’s failure contains a stark message: No matter how smart and innovative they may be in their core businesses, employers cannot go it alone when it comes to reforming our dysfunctional health care system.

Publication Details

Publication Date: January 12, 2021
Contact: David Blumenthal, President, The Commonwealth Fund
Citation:

David Blumenthal, “Employers Can’t Fix U.S. Health Care Alone,” Harvard Business Review, Jan. 12, 2021.

Experts

David Blumenthal, M.D.
President, The Commonwealth Fund