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April 11, 2012

Purchasing High Performance Archive 383f301d-2a3d-4db0-bdba-18fa9c50e9df Perspectives on Policy

Newsletter Article


Supreme Court Poised to Rule on Health Reform, but Change Is Here to Stay

By Brian Schilling

Late last month the Supreme Court heard a record-breaking five-and-one-half hours of oral arguments on the Affordable Care Act. The big issue on the table is the constitutionality of the individual mandate to buy health insurance that is at the core of the law, but the court will look at a number of other issues as well, including:

  • whether the individual mandate is severable (that is, if other aspects of the law would stand even if the mandate is struck down);
  • whether Congress can push states into expanding their Medicaid roles by threatening to withhold federal funds if they don't; and
  • whether the debate over the mandate is premature since it is not slated to take effect until 2014.

The Court's decision on these matters will surely have a substantial effect on the trajectory of the U.S. health care system over the next decade. To begin with, the coverage status of roughly 50 million currently uninsured Americans hangs in the balance. Without an individual mandate and subsidies to help secure coverage, evidence suggests this number will continue to grow.

The Court's ruling may also decide the fate of the health insurance exchanges that are forecast to help extend coverage to millions of Americans and overhaul the buying and selling of health coverage in the U.S. In states such as Alaska, Kansas, Oklahoma, and Florida, which have already refused federal health exchange start-up funds, any adverse ruling would probably doom the exchanges. In states with stronger support, the exchanges may yet emerge, albeit with a less ambitious coverage agenda. But even in states like California, where support is quite strong and health exchange-related provisions of the Affordable Care Act have already been incorporated into state law, there is broad acknowledgement that it would be difficult to cover large numbers of uninsured individuals without federal support.

We may not have to wait long for the Supreme Court ruling. Many experts believe a June 2012 decision—smack in the middle of the presidential campaign—is realistic. But whatever the ruling, certain key changes and trends will likely continue. These include:

  • Consolidation and digitization. In anticipation of a huge influx of patients as a result of the law, hospitals are consolidating and ramping up electronic health record (EHR) efforts. The consulting firm Levin Associates reported an 86 percent increase in mergers (involving some 227 hospitals nationwide) between 2009 and 2010 and expects that 2011 figures will show a continuing trend.1 With respect to EHR efforts, a 2011 American Hospital Association survey found that 81 percent of acute care hospitals planned to achieve meaningful use of EHRs and apply for incentive payments within the next two years.2 Driving interest in EHRs is, among other things, the Health Information Technology for Economic and Clinical Health (HITECH) Act, which includes billions of dollars to help fund the shift to EHRs and establishes regional extension centers to offer hands-on support.
  • Accountable care organizations. Accountable care organizations (ACOs) are provider networks formed to improve care coordination partly by sharing electronic medical records and analyzing trends in patient care. ACOs typically share some risk for the cost of care, which gives them an incentive to improve care quality and cut costs. About 100 of these organizations currently exist, but that number is expected to rise substantially according to Elliott Fisher, M.D., director of the Dartmouth Institute for Health Policy and Clinical Practice. By 2013, he projects that there will be 200 ACOs and within three years there may be as many as 1,000.3
  • Tougher oversight of insurers. The Affordable Care Act includes a raft of insurance market and oversight reforms that govern plan activities and policies related to rescissions, lifetime limits, appeals, referral processes, and spending on administrative overhead. Despite some pushback from insurers, consumers are broadly supportive of these reforms, which may make it untenable for carriers to revert back to prereform practices.
  • Coverage for dependent children up to age 26. The provisions of the health care law specifying that adult dependent children must be offered coverage under their parents' plans has proven to be extremely popular both with the public and with health plans. To date, more than half a million dependent children have been covered as a result of this rule change. Many experts suggest that since the market has already embraced this policy change, reversing the law would not result in those individuals being removed from insurance rolls.
  • Streamlined application procedures for Medicaid beneficiaries. Under the law, state programs have been given marching orders to standardize the dizzying Medicaid eligibility rules and application processes that vary from state to state. States will be required to offer a single, simple Web-based application both for Medicaid recipients and for individuals seeking coverage through the health exchanges.



1 Irvin Levin Associates, "Decade in Review: Hospital M&A Continues Recent Rebound," Press Release, Feb. 3, 2011. 
2 C.-J. Hsiao et al., Electronic Medical Record/Electronic Health Record Systems of Office-Based Physicians: United States, 2009 and Preliminary 2010 State Estimates, Dec. 2010, online at  
3 K. Kennedy, "Health Care Providers Embracing Cost-Saving Groups," USA Today, July 24, 2011, online at  

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Case Study

Newsletter Article


Midsize Employers in Kansas City Think and Act Big on Benefits; Will Others Follow Suit?

By Brian Schilling

To benefits managers at small and midsize companies, their large corporate counterparts must seem like a fortunate bunch as they indulge in luxuries like negotiating with vendors from a position of strength, dabbling in special projects designed to boost health care quality and—gasp—thinking ahead more than a single year. Even a straightforward effort to customize wellness programs to an employer's population seems daunting: Who will collect the data? Who will analyze it? How do we start to change employee behavior? And where do we find the money for all this?

But at least one group of benefits managers in Kansas City has found a viable workaround: collaboration. For the past three years, 16 area employers have worked together with their local business coalition to do something typically reserved for large employers—digging through reams of data and using the results to customize their individual benefits programs to conform to the principles of value-based benefit design (VBBD). The effort has already saved millions of dollars, and is now serving as the model for other employers.

The project, dubbed the Kansas City Collaborative (KC2), was spearheaded by the Mid-America Coalition on Health Care (MACHC), which launched the effort with support from Pfizer and the National Business Coalition on Health (NBCH) as a way to demonstrate that smaller employers could profit from tailoring benefits and wellness strategies to their unique populations. Participating employers represented diverse industries: health care, financial services, manufacturing, even greeting cards. The median size was approximately 4,000 employees; one employer had just 375. None had previously attempted the sort of analysis envisioned by KC2's chief architect Bill Bruning, who was then president of MACHC.

"To do value-based benefit design right is fairly daunting," said Bruning. "The whole idea is to create a completely customized benefits strategy based on the needs of your covered population. That's why large employers are the only ones doing it—they have the resources."

Project Origins

MACHC, one of the oldest employer-driven health coalitions in the country, has a long history of hands-on involvement in a variety of quality improvement efforts. In 2000, the organization recruited 14 area employers to collaborate on an effort to destigmatize depression, encourage those suffering to get help, and improve the range and quality of available care. The effort is frequently cited as a model intervention. During the course of developing it, employers became intrigued about the possibility of collaborating on other shared health issues. Five years later, many of the same participants regrouped to focus their attention on cardiovascular disease. The chief frustration among participants was unexpected—vendors either couldn't or wouldn't give them their own data.

"You'd be surprised how often vendors told us that they couldn't supply the data we wanted," said Bruning. "It often felt like we were the first ones ever to ask for it."

That experience led the MACHC staff and membership to collectively ask whether there was a better way to design their benefits programs so they could get the data necessary to actively manage the health of their employees. At about the same time, Bruning was developing an appreciation for VBBD, which involves structuring benefits in a way that encourages employees to make choices among treatments, tests, and physicians based on value. Typically, high-value care costs less, while low-value care costs more. For instance, flu shots might be free, but an MRI for a routine backache might carry a large copay.

Bruning was convinced that the MACHC membership was ideally suited to conducting a large-scale, collaborative, data-driven VBBD demonstration project. He began actively recruiting employers for the KC2 effort in 2008. In 2009, Pfizer agreed to offer financial support and technical assistance, especially in regard to analyzing data. NBCH signed on in 2009, as well, with an eye toward turning the KC2 experience into a replicable national model.

Data Gathering and Analysis

For the 16 employers participating in the KC2 initiative, the first phase of the effort involved a long, careful look in the mirror.

"Most employers in the country have an incomplete or even an inaccurate picture of their specific health challenges," explains Bruning. "We wanted to correct that up front by analyzing any and all available data so we could better focus our wellness efforts on workforce-specific health risks and have a baseline for comparison later."

Often, employers had to go looking for key data.

KC2 identified more than 19 different types of data as potentially worthy of analysis (Exhibit 1). Claims and pharmacy data were typically available, but data from other sources such as employee assistance programs and disease management vendors were rarely accessible. In some cases, employers found that they didn't technically own even aggregated data about their own employees.

"We had some employers work for six months or more just to pull together enough data to do a meaningful analysis," said Bruning. "The first question people often ask about their own health care data is 'Where is it?'"

Bruning says that the process of working with employers to get their data was a lot like teaching them to fish—after some basic instruction and coaching, they improved quickly and became self-sufficient. In addition, vendors became more adept at providing raw data or regular reports as requested by their employer clients.

Data—including baseline health surveys, biometric screening efforts, and past claim archives—began pouring in. Much of it was used to populate a KC2-developed tool called an employer data tracker—a spreadsheet that helps employers better understand the relative significance of the various health issues they face.

Data gathering led to analysis and report writing. Eight months into the process, KC2 employers got to see a clear picture of their specific health challenges for the first time.

"Data are the best antidote to preconceived notions about what an employers' key health issues are," said Bruning. "The health data tracker is a scorecard that tells a company it needs to focus on health issue X instead of on issue Y. Each company's employer data tracker tells a different and very nuanced story."

Narrowing the Focus

The baseline assessments found some common ground. Across all employers, 28 percent of employees had high blood pressure, about a quarter self-reported poor nutrition and inadequate physical activity, and more than half were obese or overweight. The findings suggested that heart disease was a shared issue.

As a group, KC2 participants decided to focus their efforts on reducing cardio-metabolic risks. Then, based on their specific needs, each employer narrowed its particular focus to one or more of the following health issues:

  • obesity;
  • high blood pressure;
  • high cholesterol;
  • high blood sugar; and
  • smoking.

Employers also chose interventions and set goals related to identifying employees with these conditions, preventing illness, and improving adherence to related treatment regimens.


The interventions varied considerably. Some common themes emerged, of course—every employer modified its benefits plan according to the principles of VBBD—but each intervention was specific to the employer and the chosen health issues. For example:

H&R Block: In addressing weight management, high cholesterol, and high blood pressure, this financial services company opted to engage employees by offering premium credit and cash in exchange for participation in wellness programs. It also gave employees access to an online plan cost estimator to help them better understand the out-of-pocket costs of available plan options.
JE Dunn Construction Company: This 2,200-employee construction firm set its sights on lowering tobacco use by designating its headquarters and work sites as tobacco-free. Employees and family members were also offered free smoking-cessation classes and full coverage for tobacco-cessation medications. Smokers who didn't participate were hit with a monthly premium surcharge.
Kansas City Blue Cross and Blue Shield (KCBCBS): With the broad goal of making its workforce healthier, KCBCBS established a free onsite fitness center, banned smoking on campus, worked with vendors to make healthy food available in the cafeteria, and offered to pay 50 percent of employees' fees in Weight Watchers. The company also designated October as Health and Wellness Month, which featured access to an electronic health risk assessment and free telephonic health screening.


In April of 2011, MACHC reported that the participating employer companies had collectively avoided about $11 million in health care costs as a result of the wellness efforts resulting from the KC2 collaboration. Though substantial, that first-year savings figure is probably less impressive than what actually happened on the ground at specific companies. For instance:

  • At H&R Block, health risk assessment screening participation rates jumped 178 percent from the 2009 baseline. The percentage of employees in the high-risk category for future health issues dropped from 16 percent to 9 percent.
  • At JE Dunn, the prevalence of tobacco use dropped from 17 percent in 2007 to 11 percent in 2010.
  • KCBCBS saw a 20 percent increase in employees in the lowest-risk health category and a 5 percentage point overall increase in the aggregate employee wellness score.

Other employers reported similar results after the interventions had been in place for only one year.

Bruning expects to see the positive trends continue as KC2 employers continue to collaborate through MACHC even now that the initiative has ended. "They're seeing a real return on the investment," he says, "and that's before capturing things like reduced expenses around recruitment and retention, absenteeism, presenteeism (i.e., attending work while sick), productivity, and training. Human resource executives should ask for these factors to be weighed to get a more complete picture of the value and to compute a 'fully loaded' return from their efforts."

The American Health Strategy Project
The KC2 project has led to similar efforts across the country. In 2010, NBCH and Pfizer used the lessons, tools, surveys, and metrics developed as part of the KC2 effort to launch the American Health Strategy Project (AHSP) through five additional coalitions:

  • the Dallas-Fort Worth Business Group on Health;
  • the Midwest Business Group on Health;
  • the Oregon Coalition of Health Care Purchasers;
  • the Pittsburgh Business Group on Health; and
  • the Virginia Business Coalition on Health.

Efforts in all five locations appear promising and are building new partnerships between coalitions and their employer members. Bruning is optimistic that the employers and the coalitions involved in the project will see substantial value in the effort almost immediately. "Benefits aren't a one-size-fits-all kind of thing," he says. "Every company has a unique employee population with its own specific needs; AHSP is going to show many participating employers what those needs are for the very first time."

The five participating coalitions will benefit too, says Bruning. "For MACHC it was an opportunity to be in almost daily contact with our members' human resources staff—working on data problems, helping guide analyses, suggesting solutions. We helped make a real difference. This kind of initiative is why coalitions exist."

Exhibit 1. Selected Potential Data Sources for Value-Based Benefit Design Efforts

1. Company demographics
2. Health risk assessments
3. Medical claims
4. Pharmacy claims
5. Short- and long-term disability carriers
6. Disease management vendors
7. Workers compensation programs
8. Employee assistance programs
9. Employee satisfaction surveys
10. Absence, sick leave, and paid time off reports
11. Family medical leave data
12. Productivity, absenteeism, and presenteeism analyses
13. Workplace safety initiatives

Source: Mid-America Coalition on Health Care, "Kansas City Collaborative: A Value Based Initiative," 2009.

Lessons Learned from the Kansas City Collaborative
  • Expand your health management team. Low-hanging fruit for many KC2 participants was simply seeking out and including representatives of other key departments—risk management, safety, payroll, and others—and engaging them in wellness efforts. Their input proved invaluable.
  • Get and use more data. To get a clearer picture of your company's health issues, don't rely exclusively on claims and pharmacy data. Other data can be critical to understanding your true priorities and opportunities.
  • Build a supportive environment. Don't underestimate the importance of focusing on nontraditional interventions such as making sure healthy food is available in the cafeteria and at meetings. Make sure senior leadership supports any wellness efforts enthusiastically.
  • Redesign benefits. Every single KC2 employer made changes to its health benefits to remove unintentional obstacles to high-value care.
  • Engage employees. Nothing else matters if you are not successful in getting employees to participate in the wellness programs. Get comfortable taking on the role of population health coach.
  • Partner with vendors. Hold summits, view a related video, and think long term. Be choosy when it comes to vendors—you'll be counting on them for a lot.


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Featured Articles

Newsletter Article


Specialty Drug Costs Poised to Skyrocket but Many Employers Have Yet to Take Note

By Brian Schilling

If the rising cost of specialty drugs is not at the top of your list of health care concerns, it may be soon. Specialty drugs currently account for about 17 percent of the average employer’s overall pharmacy costs, and they’re rising fast.1 One of the nation’s largest pharmacy benefits managers projects that specialty drug costs will increase annually in the range of 21 percent to 24 percent over the next three years.2 An industry report suggests that specialty pharmacy costs may account for 40 percent of total drug spending by 2020.3 Even so, employers are giving the issue a collective shrug. According to a November 2011 survey by the Midwest Business Group on Health (MBGH), 25 percent of employers have little or no understanding of specialty pharmacy and 53 percent have only a moderate understanding.4 Some 30 percent of employers don’t know how much they spend on specialty drugs overall.5

It’s a safe bet that they spend a lot. Specialty drugs are vastly more expensive than their traditional drug counterparts, often costing more than $2,000 per month per patient. Some drugs cost much more. Tretinoin, a drug that can help manage some complications of leukemia, costs $6,800 a month. Others cost upwards of $100,000 per year. The most expensive can cost $750,000 per year.

While no strict definition of specialty drugs exists, they are commonly thought to require: prescription by a specialist; special handling; intravenous administration; and a high degree of patient management to ensure compliance and safety.

Specialty drugs include treatments for AIDS, infertility, obesity, and some other medical conditions, but specialty drugs for just three conditions—cancer, arthritis, and multiple sclerosis—account for more than half of all spending on specialty drugs.6

Dr. Randy Vogenberg, at the Institute for Integrated Healthcare, a consulting firm that conducted the MBGH survey and advises clients on pharmacy-related issues, suggests one reason little attention has been paid to the rising cost of specialty drugs is that over the past decade, billions of dollars in pharmacy costs have been saved as dozens of blockbuster drugs have come off patent, making much cheaper generics available. That has kept overall pharmacy cost increases down to around 5 percent last year. However, this savings is only temporary, he says.

"The pipeline for specialty drugs is enormous," Dr. Vogenberg says. As of late 2009, 633 specialty drugs were in development.7 The profit margins for specialty drugs are robust, so manufacturers aren’t hesitating to invest money in their development. The drugs also typically address chronic illnesses so they may be used by patients for a very long time. Consequently, they’ve been described as "jackpot" drugs for manufacturers. Dr. Vogenberg doesn’t disagree: "This is an evolving area where manufacturers are looking to make up for the revenue they’ve been losing to generics as brands go off patent protection."

Since specialty drugs don’t typically face competition from generics or even from other specialty drugs in certain instances, manufacturers have not hesitated to raise prices annually. In 2006 and 2007, manufacturers increased specialty drug prices 7.9 percent and 8.7 percent, respectively.8 In 2011, spending on specialty drugs rose 16.3 percent.9 Specialty drugs can bring in enormous revenues for manufacturers. Five specialty drugs—Humira, Enbrel, and Remicade (for arthritis) and Avastin and Rituxan (for cancer)—rank among the top 10 best-selling drugs worldwide by revenue and collectively accounted for $29 billion in sales in 2009.10

Health plans and pharmacy benefit managers are using various strategies to manage specialty pharmacy costs for employers, including ratcheting up copayments, limiting prescription durations, requiring the mandatory use of mail-order pharmacies, and using step therapy, which requires patients to try less expensive drugs before more expensive ones become an option.

Dr. Vogenberg isn’t opposed to any of these approaches, but he isn’t enthusiastic about any of them as a solution. "Truly effective strategies for controlling specialty drug costs aren’t going to involve just one approach and they probably don’t exist yet," he says. "Comprehensive strategies are being developed now, but the key aspect they are going to emphasize is that they’re high touch. You can’t effectively apply traditional utilization management strategies across the board to populations this small. It’s an out-of-date approach and it is simply the wrong bag of tools for the job."

Spending growth in specialty pharmacy costs has taken place mainly on the medical side, where utilization and costs may be managed with very different approaches. This disconnect has made it difficult to control costs. "It’s absolutely imperative in managing specialty pharmacy costs that you have a plan for both the medical and pharmacy side of the benefit," said Julie Kulawiec, R.N., senior director of specialty benefit services at Express Scripts, one of the industry’s largest pharmacy benefits managers. "That may be the most important single thing for employers to consider. Don’t just focus on pharmacy or you’ll have half a management strategy."

Traditionally, costs for drugs that are administered intravenously or that require careful follow-up for safety reasons tend to fall under the medical benefit. Safer, self-administered agents are typically covered under the pharmacy benefit. Today, each side accounts for roughly half of total pharmaceutical spending, but the bulk of future increases may be on the medical side as specialty drugs for rheumatoid arthritis, multiple sclerosis, cancer, hemophilia, metabolic disorders, and pulmonary arterial hypertension have all recently earned FDA approval.11

So what can employers do? Vogenberg offers a short list of must-do items for benefits managers who may be tasked with managing specialty pharmacy costs:

  • Establish baselines. Most employers don’t have a clear idea of how specialty pharmacy costs are hitting their bottom line. Comb through available data to determine what illnesses or specialty drugs may be most relevant to your organization. Also, look beyond costs to consider what other impact the related illnesses may have on your organization.
  • Educate yourself. Consider attending the Pharmacy Benefit Management Institute’s annual conference on pharmacy benefits or look for a regional offering through your business coalition. Subscribe to a related journal like Biotechnology Healthcare. And make an effort to familiarize yourself with the specialty drug pipeline to help better forecast costs and other implications for your benefits plan down the line.
  • Rethink contracting. Insist that any vendor tasked with managing pharmacy costs be willing and able to supply timely reports on both cost and utilization. Ensure that those same vendors can provide the kind of high-touch support that individuals prescribed specialty drugs may need.
  • Focus on communications with employees. Make sure that employees understand their benefits, especially when adopting any new strategies for managing specialty drug costs. Out-of-pocket costs, in particular, need to be made clear.

But perhaps the lowest-hanging fruit for employers seeking to keep specialty drug costs in check may be simply giving employees more of an incentive—financial or otherwise—to adhere to their medication schedules. More than three-quarters of employers still don’t do this.12 As former Surgeon General C. Everett Koop once noted, "Drugs don’t work in patients who don’t take them."

"Medication compliance is a huge issue and has been for a long time, but it is one thing if a patient self-terminates treatment because they think they’re better and a $10 antibiotic prescription gets dumped," said Dr. Vogenberg. "It’s another thing if that prescription cost $6,000 and failure to adhere to the schedule lands the patient back in the hospital. No employer wants to have an investment like that go down the drain."

1 URAC, The Patient-Centered Outgrowth of Specialty Pharmacy: Why Patient Management Strategies Are Critical to 21st Century Providers (Washington, D.C.: URAC, 2011), available at
2 B. Nease, S. Miller, S. G. Frazee et al., 2010 Drug Trend Report: A Market and Behavioral Analysis (St. Louis, Mo.: Express Scripts, April 2011), available at
3 MEDCO 2011 Drug Trend Report, available at  
4 MBGH Employer Survey on Specialty Pharmacy, Sept. 23, 2011, available at  
5 Ibid.  
6 F. R. Vogenberg, "Specialty Pharmacy Trends and Plan Sponsor Value," Biotechnology Healthcare, Aug. 2009 6(3):43–45. 
7 Credit Suisse analysis as reported in: E. Silverman, "Drug Pipeline Loses Pressure," Managed Care, Aug. 2010 19(8):23–26, available at  
8 AARP Public Policy Institute, RX Watchdog Report: Trends in Manufacturer Prices of Specialty Prescription Drugs Used by Medicare Beneficiaries, 2004 to 2007 (Washington, D.C.: AARP, Sept. 2008), available at  
9 URAC, Patient-Centered Outgrowth, 2011.  
10 J. Appleby, Kaiser Health News, "Specialty Drugs Offer Hope, But Can Carry Big Price Tags," USA Today, Aug. 22, 2011, available at  
11 URAC, Patient-Centered Outgrowth, 2011.  
12 Vogenberg, "Specialty Pharmacy Trends," 2009.

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Newsletter Article


Update: Medical Homes Gain Momentum

By Brian Schilling

In late 2009, Purchasing High Performance published an article introducing readers to the patient centered medical home (PCMH)—a new health care delivery model that was being closely watched and generating many questions. Will it save money? Will it improve quality? Will patients like it? Various pilot tests looked promising. Four key medical societies stood behind it. IBM and other employers were strong supporters and a handful of medical groups had become certified as recognized medical home practices by a leading accreditor. The promise was there, but a fundamental question remained: would it work?

Three years later, results from early PCMH demonstrations suggest promising answers. The medical home does appear to improve quality and make care more efficient.1 Furthermore, physicians seem to prefer practicing in medical homes.2 Among employers, support appears to be growing. The Patient-Centered Primary Care Collaborative (PCPCC), a multi-stakeholder coalition with a mission to promote the PCMH model, has a membership of nearly 850 organizations, including dozens of Fortune 100 firms, health plans, unions, utilities, and states. Paul Grundy, M.D., IBM's Global Director for HealthCare Transformation, serves as PCPCC's president and for years has served as the nation's leading PCMH evangelist. Lately, he's been writing letters.

"Last November, I suspect that most major health plans were getting a letter almost every single day from one of their employer clients saying that they wanted their beneficiaries to have access to care through a medical home-type system," said Grundy referring to a coordinated PCMH promotional campaign that involved dozens of other employers. "We wanted to show them that the medical home is something we believe in and that as purchasers of health care we're going to favor plans that adhere to the principles of the medical home model."

Among the other employers participating in efforts to push the medical home model were Fortune 500 firms (e.g., Dow Chemical), 26 states (both as employers and through their Medicaid programs) and, notably, the federal government. The U.S. Office of Personnel Management (OPM), which buys coverage for 8 million federal workers and dependents, was an early supporter of the medical home model and remains a staunch if nonprescriptive advocate.

According to OPM Chief Medical Officer and former Rear Admiral Dr. Christine Hunter, the agency's annual "call letter" (which articulates OPM's expectations of plans serving federal employees) shows the agency places a high priority on integrating care. "On the first page of last year's letter, we listed key initiatives for 2012. Number one on the list directed plans to submit proposals for implementing pilot programs directed at improving and integrating patient care management through redesigned practice models like integrated health care systems or medical homes," said Hunter. This year, Hunter expects the language will be even more direct. "We're strengthening our emphasis on PCMH. We really want to make the point that this is something we care about," she said.

The message has not been lost on health plans. Wellpoint, Aetna, CIGNA, Humana, United, and Blue Cross Blue Shield plans in 39 markets are all working to make medical home-type care available to enrollees. Most have pilot projects in place or are already beyond the pilot stage. That doesn't necessarily mean that every enrollee in every plan will have access to a medical home, but the rollout goals at many plans are ambitious. Blue Cross Blue Shield of Tennessee expects to give 50 percent of its chronically ill members access to a PCMH-focused practice by the end of 2012. At Independence Blue Cross in Pennsylvania, the goal is simply to have as many physicians practicing in PCMH settings as possible. Wellpoint, the nation's largest insurer, is rolling out medical homes in all of its markets.

At integrated health plans like Geisinger Health System and Kaiser Permanente, adoption may even be further along. "Geisinger essentially operates this way already," said Grundy.

For physicians, earning PCMH recognition from a national accreditor is now somewhere between being a valuable way to distinguish oneself in the market and a business imperative. Consequently, the number of practices in the country that have earned PCMH recognition from the National Committee for Quality Assurance (NCQA) has jumped from fewer than 29 in late 2008 to more than 1,500 today. More than 21,000 physicians have earned individual recognition. According to NCQA, some 3,000 practices are expected to earn recognition this year.

IBM's Grundy fully expects that the medical home will continue to play a major role in the long-term evolution of the health care system, but at present he's focused on a more immediate goal. "I can't tell you what the health care system will look like at any point down the road, but for employees of IBM and some other large firms, my expectation is that in three years they'll all have access to care through a medical home," he said.

According to Grundy, the rewards for firms that jump on the PCMH bandwagon early will be tangible. "They're going to get more members," he says, noting that last year IBM made an effort to steer employees to Wellpoint and Anthem—and consequently away from other carriers—based partly on their efforts to establish medical homes in key markets.

"The message I'd like plans to hear," said Grundy, "is that if you can't provide our employees with care that's consistent with the principles of the patient centered medical home in the near future, we're just not going to do business with you."


1 K. Grumbach and P. Grundy, Outcomes of Implementing Patient Centered Medical Home Interventions: A Review of the Evidence from Prospective Evaluation Studies in the United States, (Washington, D.C.: Patient-Centered Primary Care Collaborative, Nov. 16, 2010).  

2 L. Flores, The Patient Centered Medical Home: 2011 Status and Needs Study—Reestablishing Primary Care (Englewood, Colo.: Medical Group Management Association–American College of Medical Practice Executives, 2011).

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Newsletter Article


Interview: Dr. Arnold Milstein Talks About Accelerating Health Care Delivery Innovation, What Doctors Can Learn From Systems Engineers, and When It's Okay to Declare Victory

Dr. Arnold Milstein has been at the forefront of health care performance improvement for decades. He cofounded the Leapfrog Group and the Consumer–Purchaser Disclosure Project, and served as a congressionally appointed Medicare Payment Advisory Commission Commissioner. Voted one of the 20 most influential physician executives in Modern Healthcare's annual poll, he also is the Pacific Business Group on Health's medical director. He is a professor at Stanford University and directs its Clinical Excellence Research Center (CERC), a year-old entity that brings together experts from the fields of medicine, business, and engineering to develop new care delivery models that lower per-capita health spending while improving health and patient satisfaction. Dr. Milstein talked to us about this new venture.

IMPORTED: __media_13A8167787134CBAB4765FF8B503749B.gif PHP: Why does the world need CERC?

AM: The United States certainly needs an "innovation accelerator" that increases the flow of new care delivery methods that yield better health with a lot less health spending. CERC accelerates such flow via three activities: inventing much more cost-effective care models for illnesses accounting for the bulk of suffering and spending in the U.S.; alpha and beta testing them in diverse sites with payer support; and finding external partners to spread them nationally.

PHP: Employers are going to like hearing about the possibility of reducing health care spending by "a lot." But can you quantify that? How much are we talking about?

AM: At least $640 billion annually. I wrote about the potential savings opportunity in The New England Journal of Medicine with my colleague Dr. Victor Fuchs and cochaired the planning committee of an Institute of Medicine workshop series that quantified savings estimates. Roughly $640 billion is the amount I estimate would be saved if all care in this country were delivered by providers that rank high on quality and low in per-capita spending. Those providers typically cost about 20 percent less than the norm.

PHP: But there will always be a strong performers and not-so-strong performers, right? How do we get to the point in health care where all providers are performing at a level that we might comfortably consider excellent?

AM: We need to shrink that gap between top performers and all the rest by a lot. Think about a race in the Olympics: the last sprinter in the 100-yard dash doesn't finish two or three seconds after the leader, he or she finishes two- to three-tenths of a second after the leader. All Olympic sprinters are excellent. That's what we need in medicine—everyone crossing the finish line on the heels of the winner.

PHP: And the key is the design and execution of more cost-effective care processes?

AM: Absolutely. At CERC, we focus on innovation design and testing, and then we rely on external organizations for national spread. We start our innovation design process by identifying the current top performers in high-cost clinical areas, understanding their processes, and formulating how knowledge and tools borrowed from systems engineering and social science might substantially improve them. We select four clinical targets on which to focus every year. If the models succeed in alpha site tests, we then refine them for beta testing in diverse care delivery sites to confirm their replicability. If they replicate well, we turn to diverse national and regional health care improvement organizations and information technology firms to spread them. Fortunately, I have long and trustworthy relationships with several of the external partners with whom we'll be collaborating.

PHP: What are the four areas you've chosen to focus on in CERC's first year of operation?

AM: This year we're focused on two aspects of chronic illness care and two procedures. We're working on late-stage cancer care—a gateway to much preventable suffering and waste. We're also targeting care for late-stage chronic kidney disease, which is laden with preventable complications including end-stage renal disease that consumes $80,000 to $120,000 of annual health spending per patient. The two procedures we're looking at are colonoscopy screening and low-risk bariatric surgery.

PHP: When can we expect to see the first of these new care models?

AM: The solution elements are crystallizing now. The second quarter of this year is our target date for releasing our first four new care models for alpha testing.

PHP: Can you quantify the kinds of improvements—either in terms of lowered cost or improved quality—that you expect CERC to be able to realize in these areas?

AM: The bar we've set is to create care models that improve health while lowering by 50 percent per-capita health spending for patients for targeted conditions. For example, current methods of bariatric surgery, which improve diabetes and other obesity-related health conditions, cost about $30,000 per surgery and appear to increase annual per-capita spending for postsurgical patients compared with nonsurgically treated obese patients. We aim to reduce by 50 percent combined spending for the surgery and annual total health care spending for many years following surgery. If we succeed, every such surgery would lower overall per-capita U.S. health care spending.

PHP: So that's the definition of success?

AM: No, success is when savings from the innovative care models developed and tested by CERC materializes nationally. Our work isn't over until clinicians routinely use them to improve health and lower per capita health spending.

PHP: Which is the hard part: making better, more efficient processes or getting the health care system to adopt them?

AM: Historically it's been the latter. Fifteen to 20 years is not an uncommon timeframe for doctors and hospitals to embrace a better but unfamiliar process. But if we aspire to a U.S. health system that won't ruin the credit ratings of Uncle Sam, state governors, and globally competing American employers, we need to generate high-value care models much faster, not just deploy existing cost-effective care models.

PHP: How is CERC going to speed the adoption of its new care models?

AM: Mobilizing self-insured employers and clinical leaders will be pivotal since mobilizing government is fraught with political uncertainties. Large self-insured employers have a lot more leverage than they realize and certainly more than they use. CERC has recruited activated health care purchasers, including Boeing, a labor–employer partnership in Las Vegas, and leading employer health care coalitions like the Pacific Business Group on Health and the National Business Coalition on Health. Each is poised to help drive the adoption and testing of CERC-redesigned processes. We've also recruited health systems that have distinguished themselves in the value they provide to patients and payers—like Intermountain Healthcare in Utah, CareMore in California, Virginia Mason in Washington, and ThedaCare in Wisconsin—to serve as pilot sites for the new care models.

PHP: You have a unique team involved in the CERC effort—physicians, business people, and engineers. What's with the engineers?

AM: Systems engineers offer valuable tools such as systems analysis, systems design, and systems controls. In addition, we rely on an innovation development method created by Stanford's Institute of Design to give our design teams the best possible chance at breakthrough, using techniques like mixing different disciplines and understanding poorly articulated needs of current service users and providers.

PHP: What can the readers of Purchasing High Performance do to help support your efforts at CERC?

AM: Become one of our alpha or beta test participants. Employers will need to buy more employee health with less money if they wish to escape the "Cadillac Tax" in 2018! To become a participant, contact Bob Rebitzer at [email protected].

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Did You Know?

Look for Your Community on the Nation’s First-Ever Local Health System Scorecard
Comparative data on access, prevention, costs and health outcomes are now available for 306 local areas nationwide, representing all U.S. residents, in The Commonwealth Fund’s first-ever scorecard on local health system performance. An interactive map allows users to compare performance among communities, and gives health system leaders a tool to establish priorities for improvement and set achievement targets. The scorecard shows that access, quality, costs, and health outcomes all vary significantly from one local community to another, often with a two- to threefold variation in key indicators between leaders and laggards.

U.S. Health Care Costs More Because… The Prices Are Higher 
Nearly every medical procedure, device or prescription costs more—often much more—in the United States than in other developed nations, according to a new survey by the International Federation of Health Plans. Washington Post health blogger Ezra Klein commented that higher prices in the U.S. can’t be explained away as a natural byproduct of higher demand for goods and services. In fact, Americans don’t go to the doctor more often, we aren’t sicker, and we don’t stay longer in the hospital as compared with our contemporaries in Canada or Europe. Prices are simply higher.

Health Exchange Governing Boards Will Be Heavy on Insurers 
Insurers will get to fill as many as half the seats on each state’s health exchange governing board, say the final rules for the marketplaces, issued recently by the Department of Health and Human Services. At least one seat must be reserved for a consumer representative.

Paying Patients Who Opt for Less Expensive Care Pays
Since 2010, Anthem Blue Cross and Blue Shield has been offering members in New Hampshire, Connecticut, and Indiana a small cash incentive ($50 to $200) for voluntarily choosing less expensive facilities than the ones recommended by their doctors for tests or elective procedures. The City of Manchester, N.H., signed on as the first employer participant in the effort and to date 476 employees or beneficiaries have taken advantage of the voluntary program, netting a savings of about $250,000 for the city even after factoring in the cost of the rewards. Over 50,000 employees from companies in three states now participate. The "SmartShopper" program is designed to steer those individuals toward less expensive facilities for about 40 selected procedures with high cost variances including one, hernia repair, which can range from $4,026 to $7,498 depending on the facility involved. The program is still in the pilot stage and follow-up studies are planned to assess the effort’s impact on quality of care.

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Editorial Advisory Board and Steering Committee

Newsletter Article


Editorial Advisory Board and Steering Committee

Editorial Advisory Board

Lawrence Becker, Director, Strategic Partnerships, Alliances and Analytics, Corporate Human Resources, Xerox Corporation
François de Brantes, M.B.A. , Chief Executive Officer, Bridges to Excellence
Michael Chernew, Ph.D., Professor, Department of Health Care Policy, Harvard Medical School
Paul Fronstin, Ph.D., Director, Health Research & Education Program, Employee Benefit Research Institute
Cheryl Koopman, Vice President, Human Resources, Richards Industries
Laurel Pickering, M.P.H., Executive Director, New York Business Group on Health
Martin Sepulveda, M.D., Vice President for Integrated Health Services, IBM

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