Category Archives: Value

How do health management programs contribute to healthcare costs?

A new article in Employee Benefit News looks at the notion of employer “pay-or-play” provisions and examines what kinds of employer-sponsored benefits provide a return on investment. There continues to be some question whether certain programs sponsored by employers do in fact return value. Here is an excerpt from the article:

Health management programs are not without their critics. Research by the Centers for Medicare & Medicaid Services shows some health management programs don’t live up to their promises of reducing health care expenses.

“As an actuary, I run the formulas of disease management companies on large databases and understand why they can show an ROI increase in their formulas and what the flaws are within those formulas,” said Bruce Pyenson, a principal and consulting actuary with Milliman, a New York-based actuarial and consulting firm.

Pyenson pointed out that Americans are living longer, disability rates are lower and events associated with some chronic conditions are at an all-time low. “Americans are healthier than ever, despite the obesity epidemic,” Pyenson contended….Pyenson explained that the idea “you spend more money now in order to save more money later is an idea that does not work.”

Health care reform puts the spotlight on “some bad behaviors that employers have gotten into with benefit plans designs. Now is the time to sweep out some of that trash that accumulated over the years in benefits plans,” asserted Pyenson.

For example, employers can save money by dropping disease management and employee assistance programs, and value-based insurance designs. “It’s been proven that the stuff doesn’t work,” Pyenson said. Employers instead should aim for tighter formularies on prescription drugs benefits and challenge the commissions of brokers and consultants.

According to Pyenson, employers also can earn substantial dollar savings by moving to a limited network, tightening medical management, limiting out-of-network benefits or offering no out-of-network benefits.

The cost challenge

The challenge facing health reformers is nicely framed in a new article by Milliman principals Clark Slipher and Ron Harris. Quoting from the article:

No system is perfect and there is no single pathway to success. Geographic, financial resource, and population disparities (among others) preclude adoption of a single methodology to achieve “well managed” status universally. Still, we have concluded that a reduction in overall healthcare costs in excess of 25% would be possible if care were delivered under best observed practices.

As we discussed a few weeks ago, this number squares with the waste estimates posited by Peter Orszag. Where are the opportunities for greater improvement?

Our experience with top-performing systems does show opportunities for efficiency improvements in practically all service categories, but especially in facility-based care. With shifts in the types of treatment and places of service under best-observed clinical practices, certain categories would increase accordingly.

$700 billion of waste

NPR interviewed Peter Orszag of the White House Office of Management and Budget this morning. While the entire interview is worth a listen, one quote jumps out:

Estimates suggest that as much as $700 billion a year in health care costs do not improve health outcomes. It occurs because we pay for more care rather than better care. We need to be moving towards a system in which doctors and hospitals have incentives to provide the care that makes you better, rather than the care that just results in more tests and more days in [the] hospital.

That $700 billion in waste squares with estimates from “Imagining 16% to 12%: A vision for cost efficiency, improving healthcare quality, and covering the uninsured.”

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Medical tourism holds promise, risk

Today, the New York Times picked up on an increasingly popular narrative: the cost-driven move to pursue cross-border care (a.k.a. “medical tourism”). Cross-border care has received much attention for its savings potential. For example, from the Times article:

Mr. Schreiner is what’s known in the health care world as a “medical tourist.” No longer covered under his former employer’s insurance and too young to qualify for Medicare, Mr. Schreiner has a private health insurance policy with a steep $10,000 deductible. Not wanting to spend all of that on the $14,000 his operation would have cost stateside, he paid only $3,900 in hospital and doctor’s bills in Costa Rica.

The concept may be compelling, but there are risks. Health consumers are still limited in their ability to compare quality of care in different countries, though sound evidence is emerging. Lisa Beichl, international healthcare expert with the Milliman Care Guidelines, discusses this dynamic in a recent issue of Health Perspectives.