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Can Employers Really Make a Difference in Health Care Costs?

The menu of options for controlling costs expands.

The menu of cost control strategies available to benefits managers has historically been just two items long: cost shifting (making employees pay more of the cost of care) and wellness programs (trying to keep employees healthy). The list isn’t just short, it’s frustrating: cost shifting has a potential downside (employees may skip needed care) and wellness programs are, at best, a good way to save money in four or five years. But the range of options is expanding; companies across the country are experimenting with new and innovative ways to control costs and improve health care quality.

Tiering Physician Networks

One of the lessons of cost shifting efforts is that employers can indeed influence employees’ health care choices, and not always in beneficial ways—raise the copay and employees will fill fewer prescriptions; increase the deductible and visits to the doctor will drop. But there is a productive way to apply this lesson in human behavior to physician networks: make proven, high-quality physicians cost less and unproven or low-quality physicians cost more. This does employees a favor by steering them to physicians with expertise in treating their particular condition or illness. Tiering a network in this way turns the patient’s wallet—that ever-present advisor on big decisions—into a sort of value detector, able to communicate, very clearly, “This is the right doctor for you.”

IMPORTED: __media_EC3A42281830427393A7F95A025666BB_w_250_h_166_as_1.jpg In 2004, Gulfstream Aerospace Corp. designed a tiering effort that designated local doctors as "distinguished quality physicians" if they met certain care standards for diabetes and women's health, including maximizing the prescription of generic drugs. Physicians who met these and other standards would receive a bonus equivalent to 20 percent of office visit charges billed that year for Gulfstream employees and their dependents. To further sweeten the pot, Gulfstream lowered the office visit copay for employees seeing distinguished physicians, thus helping to ensure that more employees sought out those doctors.

In the tiering program's first year, only 10 percent of local primary care physicians qualified for designation, and the company paid a mere $18,000 in bonuses. But by 2007, 44 percent of local primary care physicians qualified, and the bonuses reached roughly $250,000. The program produced a 21 percent decrease in the average medical costs of employees with diabetes covered by the plan.

Another noteworthy initiative is Bridges to Excellence, a national pay-for-performance effort that rewards doctors for demonstrating excellence, generally in the treatment of certain chronic illnesses. In a given geographic area, local employers and health plans typically collaborate to steer patients to “recognized” doctors and fund an incentive pool. Doctors can be recognized in several clinical areas: diabetes, hypertension, coronary artery disease, chronic obstructive pulmonary disease, asthma, congestive heart failure, back pain, ischemic vascular disease/stroke, depression, and medical home. If physicians meet the criteria, say, for diabetes recognition, they become eligible for a bonus of between $80 and $200 for every diabetic patient they see who is employed by one of the sponsoring companies. Those bonuses can add up: to date, more than $2.5 million in incentives have been paid in Massachusetts alone. But the upside for employers is larger still; a Bridges to Excellence study found that an effort to steer diabetic patients to recognized physicians in New Jersey will save area employers $60 million a year in related health care costs.


Physicians aren’t the only ones who respond to rewards, of course. A growing number of employers now offer financial incentives to encourage healthy behavior. Safeway Inc., a nationwide grocery chain based in California, has been offering employees a discount on their insurance premiums if they maintain a body mass index of 30 or less, do not smoke, and keep their blood pressure at less than 140 systolic/90 diastolic with or without medication. To qualify for the discount, employees also must keep their cholesterol levels within certain guidelines if they have two or more of the following risk factors: they are a man over the age of 45 or a woman over the age of 55; they smoke; they have hypertension; or they have a family history of premature coronary heart disease, including heart attacks or strokes. The insurance rebate for each of these criteria is calculated separately, but if an employee and his or her spouse both meet all four measures of the voluntary program, they would save $1,560 per year on an annual premium of $4,628.

To encourage healthier behavior, the company allows employees who don't meet some or all of the measures but who demonstrate improvement over the year to recoup the relevant portion of the insurance rebate. The employee's physician can request a waiver or an alternate standard to the program.

Safeway management believes that 70 percent of all health care costs are driven by behavior, and that obesity is a significant driver of these costs. "If we can't get our arms around that, we don't have a chance of reducing health care costs," says Kenneth Shachmut, Safeway's senior vice president of health initiatives.

Changing behavior shouldn’t just be a matter of providing the right incentives or designing the right program, says Paul Keckley, executive director of the Deloitte Center for Health Solutions, which studies health-related behavior among other things. "It's cultural. It's not programmatic," he says. "There needs to be an unspoken expectation that people don't smoke, that people are going to walk at noon, that they work out on weekends and don’t pile up French fries on their plate. Living a healthy lifestyle needs to be part of the culture and for employers, that means leading from the top down."

The list of innovative strategies for controlling health care costs goes on and on, of course.

This article was adapted from an article by Sarah Klein that appeared in the Commonwealth Fund’s March/April 2009 issue of Quality Matters.

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