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  And yet, from 2000, when Barrett assumed responsibility for the management of Langdale’s employee health benefits, to 2009, per employee costs rose from $5,400/year per employee to $6,072/year per employee in 2009. That’s an average increase of 1.31 percent per year, compared to an average annual increase of 8.83 percent for comparably-sized firms nationally.100 To put this in context, average firms spent $29 million more than Langdale from 2000 to 2009 to provide the same kind of coverage. Langdale’s savings were $29,000 per employee—all without reducing the quality of benefits or transferring the cost burden to employees.

  So how did Barrett approach the problem? Here are a few of her strategies.

  •Langdale set up TLC Benefit Solutions, a HIPAA-compliant firm that administers and processes the company’s medical, dental and drug claims. This allows Barrett to more directly track, manage, and control claim overpayments, waste, and abuse.

  •It also gives her immediate access to quality and cost data on doctors, hospitals, and other vendors. Supplementing this data with external information, like Medicare cost reports for hospitals in the region, has allowed her to identify physicians and hospital services that provide low or high value. She has created incentives that steer individuals to high-value physicians and services and away from low-value ones. When necessary complex services are not available locally or have low quality or value, she shops the larger region, often sending patients as far away as Atlanta, three and a half hours by car.

  •Barrett analyzes claims data to identify which individuals have chronic disease and which are likely to have a major acute event over the next year. Individuals with chronic diseases are directed into the company’s evidence-based, opt-out disease management and prevention program. Individuals with acute care needs are connected with a physician for immediate intervention.

  •Langdale provides employees and their families with confidential health advocate services that explain and encourage use of the company’s benefits programs, again using targeted incentives to reward those who enter the programs and meet evidence-based targets.

  These are just a few of Barrett’s initiatives in group health, but her responsibilities also extend to life, flex plan, supplemental benefits, retirement plan, workers’ compensation, liability, and risk insurance. The results for Langdale in these areas include lower than average absenteeism, disability costs, and turnover costs.

  The point isn’t that you should just do what Barrett and Langdale have done. The point is that they’ve been proactive, endlessly innovative, and aggressive about managing the process. This attitude and rigor has paid off through tremendous savings, yes, but it has also produced a corporate culture that demonstrates the value of Langdale’s employees and community. Employees and their families are healthier as a result and are more productive at work. This has borne unexpected fruit: The industries Langdale is in were hit particularly hard by the recession, and the benefits savings from Barrett’s efforts helped save jobs.

  Barbara Barrett and many others like her on the front line are virtually unknown in health care. Most often, their achievements go unnoticed beyond the executive offices. But they manage the health care and costs of populations in a way that all groups can be managed.

  Editor’s note: We checked in with Barbara recently and found that, even in the face of new challenges, such as extreme jumps in drug prices, Langdale continues to succeed where others have failed to carefully manage health costs.

  Brian Klepper, PhD, is a health care analyst and principal of Worksite Health Advisors, based in Orange Park, Florida.

  Chapter 11

  The 7 Habits of Highly Effective Benefits Professionals

  In previous chapters, I’ve highlighted tricks the status quo health care industry uses to redistribute profits from companies to their coffers. Here I will outline some basic antidotes that the most effective benefits leaders use to ensure their organizations don’t needlessly overspend on health benefits.

  Collectively, the approaches outlined below have enabled employers to sustainably save 20 percent or more on health benefits over the status quo.

  Habit #1: Insist on Value-Based Primary Care

  This is the bedrock of the highest-functioning health systems. Primary care providers own the patient relationship, are highly trusted by patients, and when properly incentivized, can be the first line of defense against downstream costs. Some of the characteristics of value-based primary care providers are the following.

  •Are always available in one form or another

  •Welcome and immediately address complaints

  •Practice shared decision making with patients

  •Adequately inform patients of the risks, costs, and invasiveness of all relevant treatment options

  •Refer to specialists as a last resort and only to high value ones

  •Integrates behavioral health and physical therapy into comprehensive primary care

  •Close the loop when patients are seen by specialists or are admitted to inpatient care

  •Are supported by nurse practitioners and physician assistants

  •Offer care in convenient locations

  •Offer direct contracted care arrangements that align their economic incentives with lowering costs and improving health outcomes

  Habit #2: Proactively Manage Pharmacy Benefits

  Successful Rx management has been described as playing whack-a-mole. Many pharmacy benefits management (PBM) firms are well known for hidden fees, shell game pricing, and taking drug manufacturers’ money to promote specific drugs. You need to stay ahead of all of these tricks.

  There are three pillars to effectively managing drug cost and quality.

  1. Review PBM arrangements to determine the “spread” (PBM profit) and whether more favorable terms are available

  2. Make formulary changes that have a large financial impact with next to no disruption

  3. Carefully manage specialty drug purchase costs by shopping around

  Habit #3: Have Specific Plans for Uncommon (But Predictable) Gargantuan Claims

  You need a defined program for each common category of uncommon claims. It’s not unusual for 6 percent of employees to account for 80 percent of total annual claim costs. They usually fall into these areas.

  •Dialysis – With the rise of diabetes, this is inevitable. The best dialysis cost containment vendors offer multiple solutions aimed at setting the optimal price before treatment starts. They provide the most flexibility for choosing approaches that are appropriate to your specific situation.

  •Organ transplants, cancer, and complex surgery – Sending beneficiaries to high-performance centers of excellence like Mayo Clinic and Virginia Mason Hospital & Medical Center will reduce unnecessary complications and procedures, saving enormous money despite travel costs.

  •Premature babies – A comprehensive and closely monitored prenatal program is always worth it, especially if your employees have risk factors like advanced maternal age, diabetes, hypertension, and HIV.

  Habit #4: Deploy Evidence-based Musculoskeletal (MSK) Management Programs

  Given that MSK issues frequently account for 20 percent of claim costs and that over 50 percent of procedures are not evidence-based,101 this is a tremendous opportunity to slash costs and ill-advised overtreatment. As we saw in Chapter 5, one manufacturer increased its earnings by 1.7 percent by getting just a third of employees’ MSK cases into an evidence-based management program. The impact on the company’s market cap was tens of millions of dollars.

  Evidence-based approaches build on clinical knowledge with modern quality management techniques and data analytics. The results, validated in many settings, demonstrate far superior health outcomes.

  Habit #5: Refuse to Sign Blank Checks to the Health Care Industry

  Pricing failure is the most vexing problem in health care. True price transparency is the answer, e.g., bundled payments for the complete continuum of care for things like hip and knee replacements. You s
hould demand nothing less. Virtually every area of the health care industry has high-integrity and high-quality providers that are happy to provide transparency. Find them and work with them. The Health Rosetta Institute will even help.

  Habit #6: Protect Employees by Sending Them to Providers With First-rate Safety Records

  In his book Unaccountable, Dr. Marty Makary, professor of surgery at Johns Hopkins, pointed out in devastating detail how flawed the safety culture is—and how hidden the failures are—in too many hospitals. No corporate travel department would allow an employee to fly on an airline that suppressed its safety records (even if the FAA allowed it). In the same way, it’s unconscionable to blindly send an employee to a hospital with little or no information on its safety record. If the hospital suppresses that information, go elsewhere and tell your employees why.

  Habit #7: Avoid Reckless Plan Document Language that Costs Millions

  As mundane as ERISA plan language can sound, the most effective benefits leaders go over it with a fine-toothed comb. This is such an important topic that we’ve included sample document language in the Health Rosetta. You can read all about it in Chapter 19.

  ***********************

  All your moves to implement these habits should be properly documented for two reasons. First, you want your entire team (not to mention your successor) on the same page. Second, not doing so can leave you and your company vulnerable to litigation related to health plan design and administration.

  Chapter 12

  Centers of Excellence Offer a Golden Opportunity

  Tom Emerick

  As we have seen, there is a lot of unnecessary surgery and care performed in this country. This became a particular concern for me as a benefits manager in the 1980s when I was managing BP’s self-insured U.S. health plans out of its Cleveland, Ohio office. I saw employees and their family members undergoing what seemed to me to be dubious procedures. This was not the case, so far as I could see, at the Cleveland Clinic, which was used by many BP plan enrollees. So, I set up a meeting with Cleveland Clinic executives to find out why.

  Basically, they explained that their ethical standards prevented them from doing surgery on patients who did not need it. Furthermore, they had an evidence-based model for diagnosing patients with great accuracy and for prescribing the safest and least invasive effective solutions.

  Clearly, steering our people their way was in our employees’ best interests and would lead to better outcomes for our plan members and lower health care costs for BP.

  What Is a Center of Excellence?

  This is the definition of a center of excellence, a health care solution being adopted by savvy employers across the country today.

  Hospitals and health centers that are the best at what they do, whether it’s cardiac care, joint replacements, diagnostics, or something else.

  A center of excellence typically offers the complete continuum of care for a chronic disease or acute condition such as diabetes or breast cancer, from diagnosis to treatment to rehabilitation—at lower costs than less capable providers.

  These centers are fundamentally focused on patient care more so than on research or education, although they likely do both. They practice medicine using a team-based, data-driven, and accountable model. They perform high volumes of complex surgeries with great outcomes, yet they are more likely to recommend nonsurgical treatment plans whenever appropriate.

  Employers that contract directly with centers of excellence are able to offer their plan members the best care at the best price. So that’s what I did. I set up what was at that time the largest directly contracted preferred provider network in the United States. I put the Cleveland Clinic in as the primary referral center of excellence. And sure enough, surgery rates, almost across the board, dropped considerably.

  Again, excellent diagnostics is a key to making this strategy work. Over the last 30 years, I have compiled data from various sources on patients who were sent to first-class referral centers for second opinions.

  The following is a list of serious health conditions and the typical misdiagnosis rates.

  •New cancer cases—20 percent

  •Spine surgery—67 percent

  •Orthopedic surgery—up to 30 percent

  •Bypass surgery—60 percent

  •Stents—50 percent in some parts of the US

  •Solid organ transplants—40 percent

  What to Look for in a Center of Excellence

  Here are some of the traits that distinguish centers of excellence.

  •Patients are seen by multiple specialists

  •A multidisciplinary team does the diagnosis

  •That same team prescribes the treatment plan

  •If surgery is required, it is done at the highest quality available

  •The patient experience is excellent

  •Health care is integrated, collaborative, and accountable

  •Bundled payments and global fees rather than fee-for-service payments

  Health City in the Caymans Islands is emerging as possibly the best diagnostic and surgery center in the Western Hemisphere. A few other centers of excellence include Mayo Clinic in Minnesota, Virginia Mason in Washington, Mercy Hospital in Missouri, Intermountain Healthcare in Utah, Kaiser Permanente in California, Geisinger Health in Pennsylvania, and Baptist Health in Arkansas.

  Remember that organizations are usually only a center of excellence for certain procedures and specialties, not everything.

  The High Cost of Outliers

  In health benefit plans today, about 6 to 8 percent of plan members are spending 80 percent of the plan dollars. Outliers may have wildly different medical conditions, but they have a lot in common.

  •They tend to have complex health problems, usually with multiple comorbidities.

  •They are often seeing three or four specialists, who rarely collaborate.

  •In any given year about 20 percent of the outlier group is completely misdiagnosed. This means that about 16 percent of plan dollars each year are being wasted on treatments for diseases the patients don’t have.

  •About 40 percent of outliers have treatment plans that are flat out erroneous or clearly suboptimal. Adding this to misdiagnosis means that about 32 percent of total plan dollars each year are wasted, not to mention the huge amount of medical harm to the outlier population.

  •Only a handful of outlier health problems are preventable in any real sense—about 7 percent, according to my colleague, Al Lewis. While the notion of workplace wellness and prevention was a noble idea, we now know that company after company is spending a huge amount of plan dollars and resources trying to do something that can’t be done.

  A senior executive at a Fortune 10 company wisely told me that misdiagnosis is the biggest health care error. Everything that follows both harms the patient and costs you. Again, a significant portion of outliers are misdiagnosed.

  Those who succeed in controlling plan costs in the future will do so by focusing on outliers. One of the best solutions is using centers of excellence and taking advantage of superior referral centers to help ensure outliers are correctly diagnosed and given the optimal treatment plan.

  In a typical center of excellence model, an employer pays the travel expenses for a patient and companion to travel to the center if it isn’t local. If the patient needs surgery, he or she will have it at the center on the same trip. Even if the center is in another country, the quality of care more than makes up for the travel costs.

  Getting Help

  Admittedly, contracting directly with health systems that qualify to be centers of excellence usually takes a lot of effort, and you have to be a pretty large employer to get their attention. The good news is that “aggregators” are available today. These are specialty referral networks that can help companies with, say, less than 50,000 to 100,000 employees get prepackaged access to top-notch centers of excellence.

  Some employers have expressed an interest in working with direc
tly contracted centers of excellence, but have been unsuccessful in getting support from their brokers. There is growing evidence that some benefits firms have conflicts of interest in this arena, that is, they derive a large share of their total revenue by providing consulting services to specific providers. If a broker is getting 30 percent of their total revenue in this way, they may not want to help you send your patients somewhere else.

  Is your broker in this category?

  Tom Emerick is a consultant on health care benefits administration, founder of Edison Health, and coauthor of Cracking Health Costs and An Illustrated Guide to Personal Health. He previously led benefits programs at Walmart, BP, and elsewhere.

  Chapter 13

  Independent Claims Administrators vs. Insurance Company Claims Administrators –The Trade-offs

  Adam V. Russo and Ron E. Peck

  An increasing number of employers are looking to self-insure their employee health benefits for the first time. While this is a great first step toward better benefits and lower costs, it’s important to realize that not all self-insuring is the same. It can vary enormously depending on whether you decide to work with an insurance carrier that provides the administrative services (ASO) or an independent third party administrator (TPA) that provides them.

  First, let’s nail down a few basic concepts. With fully-insured “traditional” insurance, your organization pays premiums to an insurance carrier and the carrier accepts the risk, meaning the carrier pays medical bills with its own funds. If the premiums exceed the medical expenses, the carrier “wins.” If the medical expenses exceed the premiums, the carrier “loses.” But for employers that can afford the risk—that have access to sufficient funds to pay the occasional midsized to large dollar claim—self-insuring has been shown to be less costly overall.