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  Trick #1: Directing Patients to the Most Expensive Treatment Options, Even If They’re Not the Most Effective

  People often raise the specter of rationing care. In reality, it’s overuse (i.e., unnecessary and potentially harmful care) that leads to reduced access by squandering enormous financial resources that would be better used for individuals who actually need care and can’t get it.

  I asked Garrison Bliss, MD, the founder of the first direct primary care practice—a model for employers and individuals to directly contract with primary care clinicians in high-value, cost-reducing arrangements—how they were able to achieve a 30 to 50 percent reduction in surgeries. The answer was remarkably simple: Let people choose.

  For example, one of the most common reasons people go to the doctor is back pain, one of the most overtreated symptoms around. Having personally experienced searing back pain, I would do almost anything to make it go away. If I’m told that surgery and opioids are the only way to go, that’s what I’ll probably do. However, it turns out that physical therapy is very often more effective than surgery. According to Bliss, individuals will virtually always choose the least invasive and safest treatments when they’re clearly told about the pros and cons of effective potential options.

  This doesn’t typically happen though. A primary reason is that hospital-employed primary care doctors receive financial incentives to refer patients to high-margin specialty practices. In Chapter 9, we’ll learn that 90 percent of back surgeries performed at Virginia Mason Hospital & Medical Center were unnecessary and that musculoskeletal (MSK) procedures account for roughly 20 percent of all health care spending. By simply deploying an evidence-based MSK program, a large tire manufacturer improved its earnings by 1.7 percent. Had it been able to get all of its employees who have MSK issues into the program, its positive earnings impact could have been 5 percent. How many corporate initiatives can increase earnings by 5 percent?

  Trick #2: Turning Primary Care into a Milk- in-the-Back-of-the-Store Loss Leader

  Dr. Paul Grundy, IBM’s chief medical officer and director of health care transformation, shared with me how IBM undertook a two-year study from 2005-2006 of its $2 billion annual global health care spend. The results reinforced what many already knew—a strong bias against primary care that has been highly effective at undermining this valuable resource in favor of higher-cost specialty care. One consequence of this is the 10-minute primary care appointment, which leaves little time to delve into the root cause of whatever issues bring an individual to the office. This pressures physicians to take shortcuts to satisfying patients—ordering a test or prescribing a drug.

  This pattern is also a key driver of the opioid crisis, along with well-intended patient satisfaction surveys that feature questions about the patient’s happiness with the pain control measures they were given. A provider’s scores on these surveys is an increasingly significant factor in how much they’re reimbursed for government-sponsored programs like Medicare.

  Trick #3: Using Intentionally Bewildering and Absurd Drug Pricing

  Drug pricing is bewildering by design and an increasingly large share of your benefits spending. It’s part of the strategy to get away with exorbitant prices. Pharmacy benefit management (PBM) firms are well-known for hidden fees, shell game pricing, and taking drug manufacturers’ money to promote specific medications.67 With the breathtaking spike in specialty drug prices in recent years, these practices are costing shareholders, employees, and employers dearly.

  Recently, two very well-known PBMs added a brand drug called Duexis to their formularies, which currently sells for more than $4,000 for a 90-day supply. Duexis is a combination of two drugs you likely have in your medicine cabinet that together cost only a few bucks—ibuprofen and famotidine (common household names, Motrin and Pepcid). Vimovo is another expensive combination drug that is just delayed-release omeprazole (Prilosec) and naproxen sodium (Aleve).

  PBM consultant CrystalClearRx pulled data to show the drastic difference in pricing for a 90-day supply of comparable drugs and identical dosages for these two brand drugs and their generic counterparts.68

  In these cases, the brand drugs are 50 to 234 times more expensive for functionally the same drug. PBMs are incentivized to add these kinds of drugs to formularies so they can tout big discounts off high-cost drug costs. It also lets them capture high-margin revenue from hidden rebates they receive from drug manufacturers. Rebates are a form of arbitrage where PBMs receive money back from drug companies on each claim for a particular drug. They typically either don’t refund this to you at all or only partially refund it.

  PBMs are also sometimes owned insurance carriers and are not held to the margin requirements the ACA imposes on the insurance carrier. The PBM reaps enormous profits, while allowing the carrier to cry “poor” and raise your rates.

  Enough said.

  Trick #4: Not Suggesting Management Strategies for Rare but Astronomical Claims

  Benefits manager Tom Emerick, co-author of Cracking Health Costs: How to Cut Your Company’s Health Costs and Provide Employees Better Care, pointed out how outlier claims are the biggest driver of the health care cost explosion. During his time with BP and Walmart, Emerick typically found that 6 percent of employees in a given year accounted for 80 percent of company medical costs. Walmart set up a Centers of Excellence program to address the most expensive cases, in which they send employees and family members needing heart, spine, and transplant surgeries to six of the most highly rated and thus most cost-effective health care organizations for free care—if they need it.

  Often they don’t. Emerick’s book explains how Walmart found that 40 percent of planned organ transplants at local hospitals were deemed medically unnecessary when their employees visited top-notch providers such as Mayo Clinic for a second opinion. In a study published in 2017, Mayo Clinic reported that as many as 88 percent of patients who visit the clinic for a second opinion on a complex procedure go home with a new or refined diagnosis—changing their care plan and potentially saving their lives.

  Dialysis management is another source of extraordinary bills. More than 25,000,000 Americans have chronic kidney disease, and 100,000 start dialysis each year. This is inevitable, but employers can turn the huge disparity among costs for the same services, from $100,000 to more than $500,000, to their advantage by scouting out the lowest-cost, high-quality services.

  Trick #5: Hiding the Use of Accessory—and Often Out-of-Network—Physicians

  It happens all the time: You have the insurance carrier’s authorization for your physician, who is part of your plan’s PPO network, to perform a procedure like a surgery or colonoscopy. Everything seems straightforward—until you get the bill and see charges from an anesthetist, a pathologist, or a radiologist you don’t know and who turns out to be out-of-network, is not subject to negotiated discounts, and requires paying a larger out-of-pocket share because they’re out-of-network.

  This is what happened to Gap Inc. and it had much larger consequences than just paying more for care. Their HR leaders have been named in a lawsuit for breach of fiduciary duty for not applying proper care in managing their health plan.69 (See Chapter 18 for more discussion of employer fiduciary responsibilities issues under ERISA.) Some employers have tried to head off this situation with much-touted “wrap networks,” designed primarily to cover employees who need care when they’re away from home. But the wrap network rates are typically significantly higher than the rates under your PPO network. And it may actually cost more to file a claim under a wrap network than to have your benefits administrator negotiate a disputed claim.

  Trick #6: Delivering Inappropriate Oncology Treatment

  Sadly, way too much cancer treatment is unproven. Cancer centers may not follow evidence-based treatment guidelines for certain cancers and too often have limited regard for the devastating side effects patients experience during and after treatment. Also, financial conflicts are rampant at cancer centers, which may not inform
individuals and their families about costs, copayments, and co-insurance before treatment.

  Dr. Otis Brawley, MD, chief medical officer for the American Cancer Society and author of How We Do Harm: A Doctor Breaks Ranks about Being Sick in America, famously said that “the talk should not be about rationing care but about rational health care.” He described taking over the care of a patient with colon cancer that was dumped by their doctor after losing their insurance. Dr. Brawley found that the patient was on a chemotherapy regimen that was 15 years out of date and taking unnecessary drugs on which the first “greedy” doctor was receiving a substantial markup.

  “I’ve seen so many times,” wrote Brawley, “where doctors really have failed to evolve and… learn as the profession and the scientific evidence have changed over time.”70

  Putting his experience in context, the BMJ Quality and Safety Journal has estimated that 28 percent of cancers are misdiagnosed in the first place.71

  Trick #7: Suppressing Quality and Safety Data

  Not only is it statistically safer to be in an airplane than a hospital, it’s also statistically far safer to deliberately jump out of that plane (skydiving) than to be in a hospital.72 Surprised? That’s just how the health care industry wants it.

  Industry lobbying power—health care lobbyists outspend the oil, financial, and defense industries combined—is on full display when it comes to hiding quality and safety information from the public.73 Fortunately, other people are determined to dig that information out and get it to you.

  Leapfrog, an independent nonprofit founded by leading employers and health care experts, promotes health care transparency through data collection and public reporting initiatives. You can check Leapfrog Hospital Safety Grades online for your local hospitals.74 Their quality grades are based on a voluntary annual hospital survey they conduct, but only around 1,800 hospitals of 5,564 in the U.S. currently participate. They also publish safety grades based on publicly available data and the survey results for participating hospitals.

  You can also go to Medicare’s Hospital Compare, which provides data on the 4,000+ hospitals that are Medicare-certified, to find out how hospitals in your area are performing on some 60 measures, everything from serious complication rates to the percent of patients who report being given information about what to do after discharge and during recovery.75

  You can also find safety and other data about physicians at Vitals.com, RateMDs.com, and HealthGrades.com.

  None of these ratings efforts are entirely satisfactory, some less so than others, but it’s a start. More important, you can ask questions. As an employer, it’s your job to find out as much as you can about the care available to your employees and you have the ability to do so—no matter what the industry says.

  Chapter 6

  PPO Networks Deliver Value—and Other Flawed Assumptions That Crush Your Bottom Line

  Albert Einstein famously said, “We can’t solve problems by using the same kind of thinking we used when we created them.” And yet, this is exactly what health care does over and over.

  Baked into our thinking about health benefits administration are many assumptions that turn out to be flawed on deeper examination—at best outdated, at worst outrageous.

  Here are three that are doing your organization and employees serious harm.

  1. Your broker works for you*

  2. Insurance carriers want to drive down costs and PPO networks deliver the best pricing available

  3. Auto-adjudication of claims is always good

  Together, these three flawed assumptions may seem minor, but together add up to significant costs and damage to your bottom line, your employees’ bottom line, and your employees’ health. Luckily, knowing about them is half the battle to counteracting them.

  Flawed Assumption #1: Your Broker Works for You.

  Organizations often treat brokers as a buyer’s agent, but the reality is that their financial incentives typically make them a seller’s agent for your insurance carrier and other health benefits vendors. Benefits consulting is a $22 billion industry, and insurance companies are the source for the majority of that revenue.76

  According to industry veterans, over 90 percent of the compensation models for brokers conflict with your objectives, because their income increases as overall per capita health care spending increases. In a proper model, one would expect exactly the opposite. Compensation should decrease as low-value spending increases. Over the last few decades of consistent health care spending increases, status quo brokers have won big while employers and their employees have lost.

  We’ve found that most disturbing to CFOs and CEOs is that brokers generally don’t disclose a significant portion of their compensation. For example, insurance carriers and other vendors work to retain clients by tying broker commission and bonus programs to the total business the broker places with the carrier, not just your business. Brokers must typically clear a specific threshold of business each year to get these bonuses. Your business is just one piece of the total, but keeping it with the same carrier can boost the broker’s total compensation by 50 percent or more. Because this compensation isn’t specific to you, status quo brokers will often claim they’ve disclosed fees and commissions. But they are actually only disclosing your account-specific fees and commissions that may not even be the most significant piece of their overall compensation.

  Another way insurance carriers enforce loyalty is 30-day cancellation clauses in broker contracts that let carriers drop brokers on 30-day notice. If a broker gets over half of their entire compensation from a specific carrier—a common situation that can include annuity-type compensation built up over years—you can imagine how potent the threat to cancel the broker’s agreement is.

  Flawed Assumption #2: Insurance Carriers Want to Drive Down Costs and PPO Networks Deliver the Best Pricing.

  Much of pricing in health care is set as a percentage of Medicare pricing. Why? Because Medicare uses a rigorous process to develop pricing that takes into account actual hospital costs (which are often inflated, but we cover that elsewhere) and market variances. The average PPO network pricing is 2.6 times Medicare rates or, as it is often called, “260 percent of Medicare.” While there are some markets where average commercial payer pricing is lower, there are many more where the number is significantly greater—as high as 1,000 percent of Medicare in some places.77

  To get a deeper perspective, I spoke with Mike Dendy, Vice Chairman and CEO of Advanced Medical Pricing Solutions, Inc. (AMPS), a health care cost management company. A 26-year veteran of the health care industry, Dendy was previously Chairman/CEO of HPS Paradigm Administrators, an independent third party administrator (TPA) services company that manages both private and public sector plans. Before that, he was the head of the community health system business at Memorial Hospital in Savannah, Georgia.

  Dendy’s company manages a large volume of claims. On average, he says they find that hospitals bill services (called gross billed charges) at about 550 percent of Medicare and that the major insurance carrier PPO network discounts are approximately 50 percent off those prices.

  “It is amazing how little employers know about what they pay. I recently met with a Fortune 100 company that has 110,000 U.S.-based employees and asked their human resources vice president how much they were paying for health care relative to the Medicare benchmark. He had no clue and was flabbergasted when I gave him the answer. The BUCAs [Blue Cross, Unitedhealthcare, CIGNA, and Aetna] hide that information, of course.”

  In comparison, employers who properly manage their health care spend will often pay roughly 150 percent of Medicare rates. Their logic is that the government has arrived at a price that would enable health care organizations to sustain themselves, so hospitals should be willing to take a 50 percent premium on top of that. Some will accept 120 percent or less.

  However, most employers play the PPO’s “discount” game without question. There is a “wink, wink, nod, nod” exercise that insuran
ce carriers and health providers go through to arrive at a baseline PPO network price, which allows insurance carriers to say they “negotiated” a larger discount, say 52 percent. This makes it appear that the network can get you a better deal than you can on your own. I’ll give you a 99 percent discount on anything if I get to choose the undiscounted price.

  To add insult to injury, PPO networks charge access fees of $12-$20 per employee per month (PEPM) for what you might call the privilege of overpaying for health care services. The story insurance carriers continue to push on employers is that their employees won’t be able to see a doctor or be admitted into a hospital outside the PPO network relationship. This is every bit as ludicrous as it sounds. Care provider organizations are often eager to develop direct payment arrangements that are far better than typical PPO rates.

  Flawed Assumption #3: Auto-Adjudication of Claims Is Always Good

  Auto-adjudication is the term used to describe automatic payment of claims. Claims administrators will highlight one of three specific benefits, how your employees won’t be hassled with bills, it’s a sign of efficiency, or it’s based on sophisticated algorithms—typically all three. However, the best way to describe auto-adjudication is that you’re giving another organization a blank check to withdraw money from your treasury based on minimal information that may or may not even be accurate.

  Claims administrators from the largest national insurance companies to the smallest mom and pop shops essentially all follow the same process. They receive a useless Uniform Bill (UB) from a hospital as an invoice, deduct the PPO discount from the total price, then pay the claim.

  Figure 9 is an anonymized UB provided to me by Dendy. This one-page UB represents the entire invoice submitted by the hospital on this $323,000 claim. Note that 322 units of laboratory—completely unspecified—are billed at $157,808. No one in their right mind would ever accept such minimal detail if they’re spending their own money. And yet the claims administrator in this case was prepared to write the check if AMPS had not intervened.