Skip to main content

Advanced Search

Advanced Search

Current Filters

Filter your query

Publication Types



September 22, 2010

Purchasing High Performance Archive 5a7a97f9-88f4-4684-8987-c4478694f604 Column

Newsletter Article


A Note from Secretary Sebelius to Employers about Health Reform

IMPORTED: __media_111DD9FD86B64D97AEE7472BDCFD29B7_w_75_h_75_as_1.jpg By Kathleen Sebelius, Secretary of Health and Human Services

When I was Governor of Kansas, like any Governor, one of my biggest priorities was bringing jobs to our state and keeping them there. I would regularly meet with Kansas business owners, from farmers to the CEOs of some of our state's biggest companies, in order to find out how we could do better for our industries. Inevitably the same answer would come back: we need to do something about health care costs.

Over the last decade, a lot of American business owners felt the same way. Insurance premiums doubled and companies were forced to make hard choices that all too often meant cutting back on benefits, dropping coverage altogether or reducing direct compensation to make up for rising health care costs. The percentage of businesses offering coverage fell from 69 percent in 2000 to 60 percent in 2009. Small businesses were hit especially hard: over that same period, the share of firms with fewer than 10 employees offering health benefits fell from 57 percent to 46 percent.

When President Obama took office, the trajectory of health care spending was out of control. A report from the Business Roundtable estimated that in the next 10 years, employer based health care costs would almost triple to $28,350 per employee. Health care spending was on track to account for one third of the US economy. Most companies would soon be forced to act like full-time health care operations that also happened to be in the business of running supermarkets or selling cars or developing software. Similarly, health care costs were swallowing the federal budget. As Doug Elmendorf, the director of the Congressional Budget Office put it: "Rising health care costs represent the central fiscal challenge facing the country."

While saddled with these costs, American employers must compete with foreign competitors who spend a fraction of what they do on health care. According to one study, for every dollar per worker hour that US manufacturing firms spend on health care, the average foreign firm spends 40 cents. For some firms, it's much less. Selling products in a global market is like running a race with a weight around our ankles.

Clearly, something had to be done. And so we took action.

The Affordable Care Act passed by Congress and signed by the President in March gives businesses, big and small, immediate relief from rising premiums, improves their insurance choices over time, and begins to stabilize out-of-control health care costs. After years of talking about the growing burden of health care on businesses, we're finally doing something about it.

Help For Small Businesses
Starting in 2010, many small businesses are eligible for a tax credit for up to 35 percent of their contribution toward their employees' health insurance premiums. In 2014, that tax credit goes up to 50 percent. We estimate that about four million small businesses will qualify for this tax relief, providing $40 billion in support over the next 10 years.

The Affordable Care Act will also help small businesses negotiate lower insurance rates. Right now, mom-and-pop shops don't have the same bargaining clout as large employers. Because of this lack of clout and the extra administrative costs that go with marketing to small business, they pay 18 percent more than large businesses for the same coverage and are vulnerable to big swings in premiums every year. In our current system, depending on a frayed tapestry of state laws an illness or accident affecting one employee or dependent can put coverage out of reach for an entire company. That's going to change. Beginning in 2014, businesses with 100 or fewer employees can join a new health insurance marketplace called an Exchange. Not only will this Exchange simplify the process of buying insurance and slash administrative costs, it will also allow businesses to pool their buying power, giving the local clothing store the leverage to negotiate the same low rates as the department store around the corner. And participating firms and individuals will have a wider array of plans to choose from—the same choices available to their Members of Congress.

In addition to being able to negotiate for better rates, small businesses will also see an end to unfair and unpredictable premium jumps. Before the Affordable Care Act was enacted, insurance companies routinely handed down double digit rate increases to small businesses that had little leverage to push back. Without negotiating power, most businesses had no choice but to take the new rate and make cuts elsewhere. Under the new law, HHS will partner with states to identify unreasonable premium hikes and demand information from insurers to support those increases. If rate increases are found to be faulty or unsupported, there will be consequences.

Small businesses with fewer than 50 employees that cannot afford to provide health coverage to their employees, even with tax credits, will be exempt from the employer responsibility provision in the Affordable Care Act. Out of the 6 million total firms across the United States, this exemption covers 5.8 million, or 96 percent.

Help For Large Businesses
There's help in the Affordable Care Act for America's biggest employers, too. Many large companies operate early retiree insurance plans that have become a huge drain on their balance sheets. Beginning this year, the Affordable Care Act provides a temporary reinsurance program that will allow employers to be partially reimbursed for a portion of their high retiree health care costs while securing the health coverage promised to retirees. The program will help shore up the health coverage that so many Americans depend on to be a bridge from the coverage they have while employed to Medicare.

One of the best things we can do for large and small employers—and their employees—is to change the way we pay for health care. Outdated fee-for-service payment systems encourage volume and fail to reward quality. As a result, we are driving up health care costs and not getting the return on our investment that we need. The Affordable Care Act includes an array of payment reforms that will help drive improvements in how care is delivered and make care and coverage even more affordable. Today, too many patients receive poorly coordinated care and in far too many instances do not receive the evidence-based care they need. This, too, raises costs.

Promoting Health Care Delivery Reform
In deciding how to change payment and delivery systems we went to the experts. For many years, private employers have been pushing for a greater investment in prevention and wellness. They have been asking for innovations like value-based purchasing, patient-centered medical homes, and accountable care organizations that promise to improve care coordination and reduce spending growth. The Affordable Care Act adopted many of those ideas and will invest in innovations that will pay huge dividends in the future. The Affordable Care Act sets up the Center for Medicare and Medicaid Innovation, which is supported with $1 billion a year to promote payment and delivery changes. The Innovation Center will be working hand-in-hand with the private sector so our efforts promote change for all Americans.

America's employers were some of the first to see that we were underinvested in prevention. They saw the costs of chronic disease first hand in sick days and missed shifts. According to one estimate, we lose $1 trillion in lost productivity due to our high levels of chronic disease. That's not surprising considering that 75 cents out of every health care dollar today goes to chronic disease and just four cents go to the kind of preventive care that can keep you from developing diabetes or heart disease in the first place. The Affordable Care Act invests in prevention in a number of ways including development of the first National Prevention and Health Promotion Strategy and creation of a Prevention and Public Health Fund that will invest $15 billion over the next 10 years. Already in 2010 we have made the first down-payment on that promise with a $500 million investment in public health and primary care training.

The Affordable Care Act also gets rid of disincentives for prevention by directing health plans to waive all cost-sharing—copayments, coinsurance and deductibles—for a list of prevention services proven to improve health and save money. We are taking a similar approach in Medicare and working with the states to do the same thing in Medicaid.

The bottom line is that this is one of the most pro-business bills enacted by Congress in more than a decade. And just in case a business owner might not get the chance to read this article, the Obama Administration is rolling out a massive education and outreach campaign to help business understand the new law. This effort will include millions of postcards sent to businesses urging them to take advantage of resources from the Affordable Care Act. Additionally, at Small Business Forums and Tax Workshops attended by thousands each year, IRS representatives will make their presentations with a special focus on the new law and what it means for businesses.

In addition, there is what may be the best consumer health tool that government has ever provided, our new website: Aside from providing the most up to date information about the Affordable Care Act, the site also allows businesses to find local health care plans that fit their needs. And if a business cannot provide coverage, they can steer their employees to this site to find a plan that is right for them.

For years, America's employers have borne the brunt of exploding health care costs and led the way on improving the health of workers and their families and reducing health care costs. Many of our best innovations for saving money on health care started with you—America's businesses and business coalitions across the country. With the investments we've made over the last year and a half, we want to join you in leading the transformation of our health care system. After years of saying we need to do something about health care, we finally have a plan. After years of costs rising with no end in sight, we finally have a vision for a better future. We look forward to working closely with partners across the health care system—with employers, with insurance companies, with clinicians and other providers—to make good on the great promise of the Affordable Care Act.

Publication Details

Perspectives on Policy

Newsletter Article


Are You Ready for September 23rd? Advice on Covering a New Wave of Dependents and Implementing Other Policy Changes

By Brian Schilling

On September 23rd, employers across the country will begin to switch gears from preparing for health care reform to implementing the first major policy change: covering employees' dependents up to age 26. A raft of other changes takes effect on that day, too. A smooth transition—and full compliance with the applicable laws—will require more than simply rewriting HR policies and informing your participating health plans.

Fortunately, help is available. But where can you find the most reliable resources?

"There's no shortage of available information for employers," said Cheryl DeMars, CEO of The Alliance, a Madison, Wisconsin-based employer health care coalition. "Our role has been to be an objective reviewer to help employers sift through lot of material, much of which is marketing material."

Checking with your own business coalition for available assistance in implementing the changes mandated by the Patient Protection and Affordable Care Act is a must, says DeMars. Many, like The Alliance, have prepared related summaries of the legislation as well as custom analyses and timelines that show how the various requirements of the act play out in local markets. The Alliance has gone a step further, holding a series of roundtable discussions to allow members to identify implementation challenges and learn from other members. DeMars also expects the group to compile and distill feedback from forthcoming forums to advise the U.S. Department of Health and Human Services.

Perhaps the most immediate challenge facing employers is notifying employees of the new policies. The final Department of Labor regulations put this notification burden on employers' shoulders. How exactly to notify employees is open to interpretation, but the following tasks should be high on your to-do list:

  • Make sure human resources staff know the new eligibility rules.

In particular, staff should know that:

    1. Dependents up to age 26 are eligible for coverage even if they are not in school or are financially independent of their parents. Even married dependents are eligible, although their spouses and children are not.
    2. Dependents who previously aged out of coverage under their parents' plan must be invited back during open enrollment.
    3. Eligibility for coverage begins the first day of the plan year. Dependents may be added or dropped during open enrollment just as before.
    4. Proof may be required. The burden of proving that dependents are eligible may fall to employees. According to a recent Mercer survey, about half of employers expect to require employees to provide such proof.
  • Post notices in company newsletters, on your Intranet site, and elsewhere. As with any major new policy, put the information where employees can't miss it and leave it there for a good long time. Also, update enrollment materials and employee handbooks to reflect the new policies.
  • Consider a dependent audit and various "proof" processes. Some employers may wish to conduct a formal eligibility audit of dependents on their plans, which means checking vital records such as birth certificates. The consulting firm Hewitt Associates reports that such audits turn up an average of 11 percent ineligible results1. Additionally, consider whether and how you plan to require "proof of absence" of other available coverage. Employers are not required to extend coverage to otherwise eligible dependents who have another viable source of coverage. A recent Mercer study found that about 50 percent of employers were considering adopting a "proof of absence" process2.

When Do Changes Take Effect?
While the law states that employers must comply with the new eligibility rules on or after September 23, 2010, most employers will probably opt for the "after" option. The law allows employers to wait to adopt the new policies until their next plan year begins. That means, if your plan has an April 1 plan year, you can wait until spring 2011 to officially invite dependents onto your plan.

Many health plans are eager to implement this policy change as early as possible. Various Blues plans, United Healthcare, and others began offering clients the option of implementing the change as early as April 2010, and since then many others have followed suit. Employer response has been mixed. About 25 percent of employers said they planned to adopt the policy early2.

Even for employers in the 37 states that already have legislation requiring dependent coverage to age 26, the new federal requirement changes things. Self insured plans, for example, are no longer exempt and marital status is no longer relevant.

"The new federal law will significantly expand the population of eligible dependents," said Sara Collins, Ph.D., vice president for affordable health insurance at The Commonwealth Fund. According to Collins, it is expected that the new definition of an eligible dependent will add about 1.5 million young adults to coverage rolls nationwide.

How Much Will It Cost?
Cost estimates range from a low of .7 percent (from the Department of Health and Human Services) to up to 2 percent or even higher, but Collins thinks the lower estimates are more realistic. "It all depends on how many people enroll and on whether or not the people who sign up are sicker than average," she said, "but the HHS estimates are rigorously done."

Strategies for dealing with the added costs will vary from employer to employer, but a survey by benefits consultant Mercer suggests that employees will be picking up a good portion of the tab. About one of five employers are considering changing contribution rate tiers (by, for example, adopting four or more tiers instead of the usual two, based on the number of dependents covered). Other employers (16%) say they will simply increase the contribution rate for all dependent coverage2. Still others (12%) expect to tighten up eligibility rules for vision and dental benefits2.

One thing employers cannot do is charge different rates for different age dependents (e.g., charging more for a 19-year-old than a 10-year-old). The new law bars any such discriminatory pricing practices.

Other Changes Taking Effect
As noted, the expansion of the definition of an eligible dependent isn't the only change employers must begin to implement on September 23. Below is a short list of other notable changes that employers would be well advised to prepare for and communicate with employees.

Elimination of lifetime limits: While lifetime limits on health coverage will be eliminated immediately, annual limits may be around for another few years. These won't be prohibited until 2013.

No cost-sharing for preventive care: Immunizations, mammograms, and other preventive services must not be subject to cost-sharing of any kind (e.g., copay or deductible).

No preauthorization for the emergency room: Not only will plans no longer be allowed to require preauthorization for emergency room visits, they will also be barred from imposing a different cost-sharing amount if the emergency room is out-of-network.

The end of preexisting condition exclusions for children: Preexisting condition exclusions are first barred for children under 19 years of age. In 2013, such exclusions are banned altogether.

W–2 reporting: Employers must show the full cost of health coverage on each employee's W–2.

Limit on flexible spending account contributions: Employees may contribute no more than $2,500 annually to flexible spending accounts.

Breast-feeding breaks: Nursing mothers must be given reasonable periodic breaks to pump milk during the first year following a child's birth. Employers are further obligated to provide a private place to pump other than a bathroom.

Other resources:


1 Effects of Health Care Reform on Dependent Audit, Ask our Expert (Chris Heinefield); Hewitt Associates Web site, accessed 8/14/10.

2 Mercer's 2010 Survey on Health Reform – Sizing up the Challenge; Mercer, Inc. May 2010.

Publication Details

Case Study

Newsletter Article


Pay for Prevention at Ochsner Health System

By Brian Schilling

Among the more interesting health benefits questions facing employers today is this: Can employers buy healthy behavior? That is, can a company pay its employees to eat better, exercise more, stop smoking, and otherwise live healthier lives? To say that a lot is riding on the answer to this question is an understatement. About 40 percent of U.S. adults are sedentary; two-thirds are overweight; 20 percent still smoke; nine in 10 have too much salt in their diets. This dispiriting string of statistics plays a major causal role in many chronic illnesses, the treatment of which accounts for about three-quarters of the nation's health care costs.

Can you simply pay people to take better care of themselves?

Starting in 2014, employers will have broad latitude to find out. That's when the federal cap on wellness program incentive payments rises from 20 percent to up to 50 percent of the cost of an employee's health premiums. In other words, employers will be able to tell employees that if they take very good care of themselves, they can save 50 percent of the cost of their health coverage.

Evidence is mounting that this just might work.

A good case in point is the experience of Ochsner Health System—a Louisiana-based nonprofit with eight hospitals, 35 clinics, and about 7,100 benefits-eligible employees. Ochsner began tinkering with home-grown wellness programs in 2003, to promote wellness in the work place including educational seminars and incentives for healthy lifestyle behaviors. The company's experience mirrored that of many other organizations that go the wellness route.

"About 40 percent of our employees participated," said Dorothy Cain, R.N., who coordinated Ochsner's efforts. "That's actually quite good and we felt like the programs had value, but we thought there was room for improvement. We were still watching our health care costs go up every year."

With the full support of the management team, Susan Piglia, director of corporate wellness, and the corporate wellness team started to look for a program that could significantly increase participation. How, exactly, was an open question. "Our goal was to lower costs and engage more of our employees in a healthier lifestyle," she said. In particular, Ochsner wanted to focus on obesity and getting employees moving again.

Virgin HealthMiles
Ochsner found what it was looking for in Virgin HealthMiles, a small and perhaps improbable arm of the Virgin empire that spans music, airlines, banking, and telecommunications. HealthMiles got its start in 2005 after Virgin founder and chairman Sir Richard Branson concluded that the only way to tackle the preventable lifestyle-related disease epidemic was to make it motivating and rewarding. Or, in other words, to make it fun.

There is, of course, a lot more to what Virgin HealthMiles does than simply tying to make staying healthy fun, but fun is a significant part of what makes the HealthMiles program effective. The program encourages participants to issue "challenges" to their fellow employees to, for instance, see who can walk more steps in a day, week, or month. Such challenges are not rare: There are about 5,000 such challenges registered and tracked on the HealthMiles site at any given time.

"Sometimes the challenges can be quite mercenary," said HealthMiles President Sean Forbes, who is himself a longtime participant in the program. "When people notice that I'm a little thicker around the middle, they think I'm soft and can beat me." He confessed that he doesn't always win challenges, but, "the important thing is that I'm always motivated."

The other major component in HealthMiles is cash. The program is billed unapologetically as a "pay-for-prevention" initiative and participants can earn hundreds of dollars in incentives and better still, save thousands on their annual health care premiums by meeting certain activity levels.

At Ochsner, the program works in the following way: employees who wish to participate are given an "activity tracking device" (a sophisticated pedometer) and access to an online platform that helps them accurately capture and track their daily activity. They also check in regularly at one of the 16 kiosks in the Ochsner system to take key health measurements (e.g., body mass index, blood pressure, weight). Based on their level of activity and the results of these check-ins, employees could earn "HealthMiles" or points that allow them to reap up to $300 annually in cash rewards. Employees that reach the Center for Disease Control's (CDC's) recommended activity levels earn a $500 reduction on their annual premium costs, or $2,000 for those with family coverage. In 2010, Ochsner discontinued the cash rewards and currently only gives the insurance premium discounts.

The HealthMiles program makes it easy to participate. The activity tracking device uploads a user's steps via USB cable right at his or her's PC. If an employee wants credit for aerobics classes or cycling to work, he or she can enter that data, too. Members can log in to their personal HealthMiles portal and get information about whether they're getting enough activity, how they're faring against other challengers, and more. Human resources staff receive anonymous, in-depth reporting about aggregate member progress on a quarterly basis. "It's great to see the aggregate reports showing that our people are being more active and getting healthier, but what really means a lot to me are the e-mails that I get from people saying that the program has helped them lose weight or lower their blood pressure," said Cain. "It's a wonderful community builder, also."

The program's first year results speak for themselves: more than 80 percent of Ochsner's employees participated. Nearly 90 percent of employees either improved or maintained their body mass index. About 40 percent of employees have already reached the CDC's recommended levels of activity. And Ochsner's employee-only medical claims were down over $3 million from 2008 to 2009, which is even more impressive than it sounds, considering it includes claims from new employees added to the growing company.

Virgin's Forbes is quick to note that Ochsner's experience is not unique. Virgin HealthMiles has more than 120 clients nationally, with about 500,000 employees participating at any given time. Ochsner's 80 percent participation rate is higher than the average rate of 40 percent, but other companies have done even better. Case studies are posted online at the VirginHealthMiles site.

"It's important to put real money behind any wellness program if you want people to participate," said Forbes. "Where you start to see a big jump is around $500 or so, but it varies from company to company. Ochsner has a $2,000 family premium discount. That kind of money doesn't just matter to entry level workers—it matters to the CEO too."

Is Improved Behavior Here to Stay?
As promising as Ochsner's experience is, the effort is only two years old, begging the question: Will results hold up over time? The issue is being studied aggressively, with ongoing experiments with pay-for-better-behavior going on around the country. The government is setting up a 10-state pilot program to evaluate the efficacy of wellness programs with a "pay" component, and literally hundreds of corporations are doing the same thing on their own.

Starting in 2014, employers will be allowed to offer rewards worth the equivalent of up to 50 percent of an employee's health premiums for participating in wellness programs and meeting health benchmarks—hence the interest in using such incentives to shape behavior. Previously, such rewards were capped at 20 percent. Given the pending ability to offer such rewards, employers naturally want to know whether or not they'll work.

The key, according to Alan Garber, professor of medicine and economics at Stanford University, may be maintaining the incentives indefinitely. "Behavior tends to revert to baseline after incentives are eliminated," he said. "However, I would be reluctant to generalize too much from those studies. For instance, if employee experiences tangible health benefits from a behavior change—not just a change in a number like a cholesterol level—they may no longer need cash incentives to maintain behaviors."

Purchasing High Performance previously reported on another behavior-shaping effort that involved cash payments (see What Happened When GE Paid Employees to Stop Smoking?), which indicated much the same thing: behavior tends to revert to baseline, absent incentives. But if those payments result in a net positive return for employers, as they appear to, they may not care. Certainly, there's no shortage of employers getting their feet wet with incentives. A recent survey by Buck Consultants found that 56 percent of employers offered some form of incentives as part of their wellness program and another 26 percent plan to offer them in the future. Another survey found that of employers that offer incentives, 25 percent offer some sort of medical insurance discounts, 30 percent offer contributions to health savings accounts, and 29 percent offer free health and fitness awards.

"The program works and we're very happy with the return on our investment," said Cain of Ochsner. At General Electric (the subject of a previous Purchasing High Performance article on behavior incentives), what began as a time-limited study in a single location is now becoming another element of GE's benefits package for all employees.

When Is a Reward a Punishment?
Using incentives to shape behavior is not without its detractors. Certain groups, like the American Diabetes Association and other advocates for people with chronic illnesses, have come out against laws that would give employers the added flexibility to offer these very large incentives. AARP has concerns, as well.

Their concerns are not unreasonable. A reward that is very difficult for people with a chronic illness to qualify for becomes, in effect, a punishment for people with chronic illnesses. If everyone in a given company qualifies for an incentive except for certain chronically ill employees, is one group being rewarded or is the other group being punished?

"We have real concerns that incentives tied to a person's premium is a backdoor way to discriminate against people with chronic disease," said Tekisha Everette, director of federal government affairs at the American Diabetes Association. "We have to ensure that if a workplace wellness program uses incentives, they are just that—incentives not penalties tied to premiums that can lead to people being driven out of coverage."

And it's not just a concern is not limited to individuals with chronic diseases. Are 60-year-old employees likely to qualify for rewards under the same program that might work well for 20-year-olds? What about employees who are blind? How would a program like Virgin HealthMiles accommodate an amputee, a person with a bad back, or an expectant mother?

Professor Garber thinks an agreeable middle ground exists. "You want incentive programs to reward outcomes that patients are able to influence by their behavior, not to reward or punish them for outcomes that are beyond their control." Diseases like diabetes have elements of both, but, he says, that wouldn't make it impossible to tease out and reward the modifiable behaviors. Garber suggests using the same standard applied to medicines to assess whether or not they deserve a place in the health care system, "If properly designed incentive programs improve health, we should adopt them just as we adopt medicines that work well. After all, most effective medicines do harm some patients, but it's a risk we take if the health benefits are large enough."

Looking Forward to 2014
With 2014 still a few years off, the real impact of raising the cap on incentive payments won't become clear for some time. But Garber expects the matter to play out in the market in short order. "Employers have been interested in changing employees' health behavior for years. They will experiment with this."

In fact, they already are: half of 600 large employers surveyed by Hewitt and Associates were planning to adopt the kind of "carrot" incentive payments encouraged by the new law. On the flip side, the "stick" approach may be just as popular, with employers expressing equal levels of interest in financial penalties for employees who smoke, won't undergo a health screening, or those who don't participate in relevant disease management programs.

What is clear is that in a few years, employers will be able to exert an enormous amount of financial pressure on employees to act or not act in certain ways. The 50 percent cap on incentives means that for an employee with family coverage, an employer could potentially put almost $6,700 of incentive payments, discounts, and penalties at stake. For employees with single coverage, the amount would be $2,400.

That's not the kind of money many people can afford to ignore, which makes structuring penalties and rewards in an ethical, fair manner all the more important. Those amounts could also make bending the cost curve a tantalizing proposition for employers and wellness vendors like Virgin HealthMiles.

"Incentives are an effective tool in encouraging employees to make intelligent choices about their health," said Forbes, of HealthMiles. "I expect we'll see [employers] get creative about the types and value of incentives that align best with their particular corporate cultures, particularly as government legislation on the matter continues to evolve."

To learn more about HealthMiles, visit

To read more about public and private efforts to leverage behavioral economics, read this article in Modern Healthcare:

For more on the ethical considerations involved in using incentives to encourage healthy behaviors, read this article in The New York Times:

Publication Details

Featured Articles

Newsletter Article


Moving Mountains (of Health Data): An Update on Data Sharing and Why It Matters to Employers

By Brian Schilling

The nation's transition to a truly wired health care system, having progressed molasses-slowly for decades, is now at least a pilot-test reality in a select few markets. And one reason may be the engagement of employers who have long realized the cost-saving, quality- improving potential of having health data zip securely and efficiently among providers, labs, hospitals, and clinics.

"We've turned the corner from talking about it to doing it," said Becky Cherney, CEO of the Florida Health Care Coalition (FLHCC) referring to the dozens of data sharing pilot tests going on around the country. Cherney's coalition of employers and health care organizations is among the leaders in the field. The FLHCC leads its own regional health information organization (RHIO), which is in the middle of a 12-month pilot project. The system allows doctors from the two largest-competing health systems in the area, which includes 10 ten hospitals, to pull records from each other's databases, including full lab reports, radiology results, and discharge summaries.

"Data are available in real time, while doctors still have patients in front of them. That's when it can make a difference," Cherney said.

In practice, pilot project will help prevent area physicians from reordering tests that have already been done, make them less likely to prescribe medications that don't mix well,  and, most important, will give them the opportunity to truly coordinate care. The system is currently being expanded to about 1,400 area physicians' offices, making central Florida one of the most wired areas of the country from a health care perspective.

"It's common for patients with multiple chronic conditions to see five, six, even seven different doctors," said Cherney. "If those doctors are not coordinating care among themselves, the patient is going to suffer."

Getting to a working pilot project was not easy. The Florida RHIO, which has been in existence for seven years, spent most of its early years addressing IT challenges, generating interest among health organizations, resolving legal issues, ensuring data security, and deciding where data would be kept (i.e., in a central repository or in a model in which all data remained at the point of origin). The Florida RHIO has tried both approaches, and now keeps data in a centralized location. Cherney won't endorse either model. "No two RHIOs will look alike," she observed. "All health care is local and all data sharing arrangements are local, too. It's whatever works in a given community."

The Florida RHIO boasts support from about 50 large employers. This support prompted the region's two competing health systems to set aside differences and participate. According to Cherney, employers all say roughly the same thing about why they participate: it helps their bottom line.

The coalition conducted a study in 2005, Cherney said, that found about 22 percent of all medical tests were duplicated or redundant tests made necessary because physicians didn't have access to earlier test results. "We would literally see patients get two MRIs in a week. We would see patients get prescriptions for drugs that were obviously contraindicated," she said.

Also key to the Florida RHIO's effort was a grant of about $2 million from the federal Office of the National Coordinator for Health Information Technology (ONC) to help finance efforts. State funding was matched by the Winter Park Health Foundation. FLHCC also contributes money, office space, and staff time to the project. But the Florida RHIO, like most others, is still searching for a sustainable business model. Cherney believes that area employers will continue to support it, including providing financial support. "This effort is entirely driven by employers," she said. "They know there is a tremendous opportunity here to improve care quality and bend the cost curve."

While the Florida RHIO is at the vanguard of such efforts, it's not alone. There are a few dozen other RHIOs that manage similar pilot projects, including efforts in Louisiana, Cleveland, and Pennsylvania. In addition, there are about 150 other RHIOs that exist only as virtual organizations, offering no real platform for data sharing and no meaningful forum for developing one.

Federal Efforts
At the national level, the ONC is moving aggressively to get health data flowing and to encourage doctors to use it. But according to Josh Seidman, Ph.D., Acting Director of Meaningful Use at ONC, providers and employers should not expect the government to step in and impose a system-wide fix.

"The federal government can only be a catalyst here. It's going to take a lot of public–private partnerships to make 'meaningful use' a reality," said Seidman. "Every employer in the country ought to be making sure that their provider contracts are aligned with the push to see that providers achieve meaningful use of health IT."

"Meaningful use" is not merely a pleasant-sounding generalization about integrating health IT into clinical practice – it's a formal set of dozens of criteria doctors and hospitals must meet to qualify for various new and large Medicare and Medicaid incentive payments. These include checking for drug–drug interactions, reporting quality measures, and incorporating lab test results into electronic health records.

For employers, promoting meaningful use will mean building new performance expectations into various contracts, redoubling their commitment to value-based purchasing (i.e., buying health care in a way that promotes quality and cost control) and, if applicable, getting involved in their local RHIO1.

More than a half billion dollars has been spent over the past year to fund states' efforts to increase connectivity among physicians and enable patient-specific information flow more freely. The ONC has also funded 60 Regional Extension Centers in virtually every geographic region of the United States. These extension centers, in turn, will provide on-the-ground support to health care providers as they transition to electronic medical records, help lower barriers to data flow, and distribute free quality measurement and reporting software.

As a result, the ONC expects to meet an ambitious goal: seeing that 100,000 primary care providers in practices with fewer than 10 doctors are engaged in meaningful use of electronic health data by 2012. "That's the high-hanging fruit," said Seidman. "But that's where our efforts will do the most good."

1 "Medicare and Medicaid Programs; Electronic Health Record Incentive Program, Final Rule," Federal Register, 75 no. 144 (28 July 2010):44314–44588.

Publication Details

Newsletter Article


What Comes in a Bottle but Is Hard to Control?

By Brian Schilling

The average U.S. company spends about 12.6 percent of its health care dollars on pharmacy costs.1 Chances are, not all of that money is well spent. Some of it will go toward prescriptions that are not used, are ineffective, or are simply more expensive than other equivalent alternatives. Since 2006, the Midwest Business Group on Health (MBGH) has offered a comprehensive, two-day Pharmacy Benefits Academy (PBA) to help employers address these and other pharmacy-related issues. This year's conference was held August 19-20. Purchasing High Performance talked with MBGH President and CEO Larry Boress and other PBA presenters at the conference to get their advice on selecting a pharmacy benefits manager and controlling pharmacy costs. They offered the following recommendations:

Know how your pharmacy benefits manager makes money and ask them to share.

The fees your firm pays to a PBM for its services may only be one of many sources of revenue. Consolidation in the PBM industry has left three companies—Caremark, Express Scripts and Medco Health Solutions—in control of the lion's share of the market. Because of their size, each of these companies can negotiate deep discounts on drug prices. That sounds like a good thing, and it is, says Boress, but be sure that your firm reaps the benefits. Is your PBM passing along those discounts? How are they calculating the average wholesale price of drugs? Do they receive any other rebates or incentive payments from manufacturers? Are those payments shared with your firm? Does the PBM sell data to a third party? It's fine to ask the PBM to disclose these payments, but better still, ask them to share them outright. If you don't ask," says Boress, "they're not going to offer."

Set performance targets.

Knowing what you want out of your PBM before you select one is key to a strong, long-term relationship, says Boress. In particular, you should know what sort of performance targets you expect the PBM to achieve. "Any PBM can give you summary cost data for your covered population, but even if that number is going down, that's very different from meeting a meaningful performance target," he says. "To be an effective, aggressive manager of pharmacy costs you need more information than cost data."

Meaningful targets could include:

  • per-member per-month costs
  • percent of covered members receiving certain kinds of prescriptions who receive a follow-up call
  • percent compliance with treatment regimen
  • percent of members offered a generic substitute
  • percent of members who switched to generics
  • percent of members who signed up for home delivery of medications

There are dozens of other such metrics, says Boress.2 Together, they can help ensure that the PBM is engaged in the sorts of activities that will keep costs down and make employees healthier. Such metrics can also identify opportunities for further cost reduction or alert managers to pending problems. "Cost-reduction targets may actually be the least helpful metric," says Boress. "It's entirely possible that a given company will be better off if it spends more on pharmacy costs, not less. Every company is different."

Fight noncompliance.

When people don't take their medications, it doesn't save money. Just the opposite, in fact. Those patients who either don't take or don't finish taking their medications and end up in the hospital are expensive. According to one study, the estimated annual costs of patients not taking their medications is about $300 billion in terms of increased hospitalization and higher medical costs. Worse, about 350 people die every day due to poor medication adherence.3 Boress and his group found that, in their region about half of patients who received a prescription never filled it and of those that did, another 50 percent never appropriately refilled their scripts. This undermines the efficacy of pharmaceuticals and can increase long-term costs in many cases.

To fight noncompliance, engage your PBM, says Boress. Those performance targets are a start, but make absolutely sure that the PBM is engaged in corresponding programs to ensure that people who get certain kinds of prescriptions also get follow-up calls and other support to increase compliance. In addition, consider the following issues: Are follow-up visits scheduled right away? Are people directed to appropriate Web and other resources? Boosting medication compliance can also involve fine-tuning your benefits—are copays low enough? Should they be zero, in some cases?

Don't expect generics to be the answer.

According to data from one insurer, the average savings for switching from name brand to generic equivalent across the 25 most common prescriptions is 52 percent. For example, the generic equivalent of one sleep aid costs 4 percent as much as its name-brand counterpart. Pushing generic equivalents is a core art of any successful effort to control pharmacy costs, says Boress. But it is possible to push too hard—generics don't work for everyone. "Even when two things are chemically equivalent, there are differences: in packaging, pill size, coatings," says Boress. "These things make a difference and generics just won't work for some patients." For that reason, Boress cautions against a "generics-only" formulary.

To the extent that generics are an option, says Boress, it's important to get people to try them before a comparable name-brand drug. Some PBMs can coordinate with manufacturers and physicians to ensure that free samples of generic alternatives are made available in physicians' offices. "That's the sweet spot," says Boress. "Once people try something and get used to it and like it, they're much less likely to switch. If I give you a generic after you're already on something and like it, are you even going to try it? Probably not."

Focus on specialty drugs.

The cost of specialty drugs (i.e., complex drugs that require special handling and patient-specific dosing) is staggering. One oral cancer medication costs $75,000 per patient per year. Another drug to treat a rare blood disease costs $200,000 per year. Dozens of other specialty drugs run $2,000 to $3,000 per month. Consequently, it is important to pay extra attention to patients on such medications. The last thing you want is for $3,000 per month in medication costs to go to waste. In particular, Boress favors compliance support programs with features like:

  • monthly calls from a care coordinator to ensure patients are taking medications and following their treatment plans;
  • 24/7 access to a nurse or pharmacist hotline;
  • educational materials; and
  • home delivery of medications.

It may also pay to stay abreast of comparative effectiveness research. Recently, researchers found that low-cost diuretics were more effective at treating certain heart conditions than were much more expensive drugs. While there's no guarantee that such findings will be translated into your formulary, make it known that you expect your formulary to reflect the findings of ongoing comparative effectiveness research.

Benefits managers may also want to consider taking courses that focus on managing the cost of specialty drugs, such as the one offered by the Pharmacy Benefit Management Institute:

Related resources:
Save the Date! Next year's Pharmacy Benefits Academy will be held September 20–22, 2011 in Rosemont, Illinois.

To learn about purchasing the Pharmacy Benefit Management Institute's member satisfaction rankings and profiles of 14 of the nation's largest PBMs, see:

For the NBCH/URAC pharmacy benefit manager purchaser's guide, see:

1, data from the Organization for Economic Cooperation and Development, June 2008.

2 See the URAC PBM Purchaser’s Guide for additional metrics:

3 Journal of Managed Care Pharmacy, Supplement, July 2008, Vol. 14, No. 6-b, Continuing Education Activity

4 BlueCross BlueShield CareFirst Web site, “Brand vs. Generic Drugs,”

Publication Details


Newsletter Article


Notable Numbers

Notable Numbers

  • 74.2%: percentage of U.S. workers who had employer-provided coverage in 20001
  • 70.5%: percentage of U.S. workers who had employer-provided coverage in 20052
  • 63.3%: percentage of U.S. workers who had employer-provided coverage in 20083
  • 59%: percentage of U.S. workers who had employer-provided coverage in 20104
  • 9%: expected increase in health care costs in 20115
  • About 7%: percentage of health care dollars that go to administrative costs in plans that serve employers with 1,000 or more employees6
  • 26%: percentage of health care dollars that go to administrative costs in plans that serve employers with 25 or fewer employees7
  • 30%: percentage of health care dollars that go to administrative costs in plans that serve the individual market8
  • 5%–6%: percentage of health care dollars that go to administrative costs in Medicare9
  • 65%–70%: percentage of all health care costs that are related to behaviors such as smoking, exercise or diet10
  • 25%: estimated percentage of all American adults who are sedentary11
  • $81,500: average total cost for coronary artery bypass graft surgery in the U.S.12
  • $58,800: average total cost for coronary artery bypass graft surgery in England13
  • $9,400: average total cost for coronary artery bypass graft surgery in India14
  • $250,000: Estimated cost of a retired couples' overall health care expenses from age 65 until death, including premiums and out of pocket costs, assuming they do not have employer-provided coverage15
  • 54%: percentage of U.S. households reporting that their total net worth excluding the value of their primary home is less than $25,00016
  • $515,000: the average cardiovascular surgeon's salary (assuming three or more years of experience)17
  • $135,000: the average family practitioner's annual salary (assuming three or more years of experience)18

1 E. Gould, "Health Insurance Eroding for Working Families: Employer-Provided Coverage Declines for Fifth Consecutive Year," Economic Policy Institute Briefing Paper #175, Sept. 27, 2006.
2 Ibid.
3 A. W. Mathew, "Workplace Set to Remain a Key Source of Coverage," The Wall Street Journal, May 17, 2010.
4 Kaiser Family Foundation, Employer Health Benefits 2007 Annual Survey (Menlo Park, Calif.: Kaiser Family Foundation, Sept. 2007).
5 PriceWaterhouseCoopers, Behind the Numbers: Medical Cost Trends 2011 (New York: PriceWaterhouseCoopers, June 2010).
 6Congressional Budget Office, Key Issues in Analyzing Major Health Insurance Proposals (Wash., D.C.: CBO, Dec. 2008).
7 Ibid. 
8 Ibid.
9 Ibid.
10 S. Aldana, "The Costs of Unhealthy Behaviors," WELCO's Absolute Advantage Magazine, 6(4):22–9, 2007.
11 P. Waehner, "Top 10 Reasons You Don't Exercise: No More Excuses," Guide, Jan. 12, 2010.
12 AllMedicalTourism, Coronary/Heart Bypass,
13 Ibid.
14 Ibid.
15 Fidelity Investments, Retiree Health Care Costs Estimate,
16 R. Helman, C. Copeland, and J. VanDerhei, The 2010 Retirement Confidence Survey: Confidence Stabilizing, But Preparations Continue to Erode (Wash., D.C.: Employee Benefit Research Institute, March 2010).
17 Allied Physicians, Inc., Los Angeles Times, and Rand McNally, Physician Salaries and Salary Surveys, June 2006,
18 Ibid.

Publication Details

Newsletter Article


Did You Know?

Health Reform at the Click of a Button: Featuring a detailed implementation timeline and a searchable database of all provisions of the landmark Patient Protection and Affordable Care Act, the Commonwealth Fund's Health Reform Resource Center is the easiest place to look for answers about what happens when and what reform means to you.

Your Daily Dose of Health News: The Kaiser Family Foundation offers a free and comprehensive summary of the nation's health-related news delivered daily via e-mail. Kaiser Health News covers state and federal health policy, industry trends, and analysis of key reports and studies. Sign up to receive the daily summary:

Required Reading for Value-Based Benefit Design Enthusiasts: The Center for Health Value Innovation recently released its first book, Leveraging Health, which uses real-world case studies to show how to effectively use 15 different "macro levers" to change health-related behaviors, cut costs, improve productivity, and help employees live healthier lives. The book is available at Amazon. To learn more about the Center for Health Value Innovation and its efforts to help employers adopt value-based benefit designs, visit: Goes Live: In July, the Department of Health and Human Services unveiled a new, easy-to-navigate Web site that serves both as a one-stop-shop for information about the implementation of the Affordable Care Act and as a portal connecting consumers to quality rankings of health care providers. The site also features useful transition tips and other information for large and small employers.

Surprise, More Firms Now Offering Coverage: The 12th annual Kaiser Family Foundation/HRET survey of employers found that even in the middle of a deep recession, significantly more firms (69%) are now offering coverage to employees, as compared to a year ago (60%). But what sounds like good news might not be. Study authors speculate that attrition among smaller firms may account for higher offer rates among surviving firms. The study is laced with other bad news for employees: premiums and employee contributions continue to rise as did the percentage of workers enrolled in high-deductible plans.

Small Business Tax Credit, Anyone? Tax credits designed to help offset the cost of health care premiums for small businesses are here. The credits, which start at 35 percent of premiums this year and go up to 50 percent by 2014, affect the roughly 16.6 million workers in U.S. firms that employ fewer than 25 employees. Rules on applying for the credit are available at

Paying for Quality, Not Volume: The two-year-old Center for Payment Reform is poised to release a number of how-to tools and reports aimed at helping employers move beyond the counterproductive model of paying providers based on how much care they provide rather than on the quality of that care. The Payment Reform Toolkit, National Scorecard, and other resources can all be found here.

Publication Details

Editorial Advisory Board and Steering Committee

Newsletter Article


Editorial Advisory Board and Steering Committee

Editorial Advisory Board

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

Steering Committee

Andrew Webber, President and CEO, National Business Coalition on Health
Barry Scholl, Vice President for Communications & Publishing, The Commonwealth Fund
Stephen C. Schoenbaum, Executive Vice President for Programs, The Commonwealth Fund
Sharron DiMario, Director of Community Initiatives, Employers Health Purchasing Corporation of Ohio
Carly McKeon, Director of Membership & Communications, National Business Coalition on Health
Brian Schilling, Lead Writer
Doug Ward, Web Developer, The Waters Ward Company, LLC

Publication Details