As lawmakers continue to debate the future of the Affordable Care Act, company leaders struggle to rein in the rising costs associated with maintaining employee health.
“I don’t know a lot about the healthcare space as an industry, but I do know that it is the second-biggest line item after payroll for our consulting firm of a little more than 100 people,” Dax Cross, co-founder and CEO of Atlanta-based Revenue Analytics, told fellow attendees at a roundtable sponsored by Hospital for Special Surgery (HSS), a top-ranked New York hospital for orthopedics and rheumatology.
Those costs are expected to continue to climb. According to the most recent survey released by the National Business Group on Health, large employers project that the average cost of benefits will rise 5 percent in 2018—representing the fifth consecutive year of increases—reaching an average of $14,156 per employee, with employers paying roughly 70 percent. Employee health issues also impact bottom lines in indirect ways, in the form of absenteeism and “presenteeism.”
“Presenteeism is when workers come to work, but can’t work at full capacity because they have some kind of health problem,” explained Catherine MacLean, chief value medical officer for HSS. As a result, productivity plummets. In fact, for some companies, presenteeism is more of a drain on the bottom line than healthcare costs.
“WE’RE NEVER GOING TO GET TO A REAL VALUE EQUATION UNLESS WE START TO THINK ABOUT BOTH THE QUALITY AND THE COST INVOLVED.”
Given the uncertainty around healthcare legislation, business leaders will have to address this for themselves by looking for innovative ways to lower medical costs, increase productivity and keep their employees healthy as well as happy. One way to think about that is to approach it from a value perspective—getting the highest quality of care for the lowest price.
“Many healthcare providers don’t like the concept of ‘value’ because they see it as code for ‘cheap’,” said MacLean. “But it’s really about not overspending on procedures and medication that aren’t needed and increasing the quality of care so that correct diagnoses are made the first time.” When the quality is low—resulting in misdiagnoses and delayed treatment—costs soar. “But if we can treat people in a timely fashion, make the right diagnosis the first time, people can get better sooner and then they can get back to work sooner,” MacLean noted. “We’re never really going to get to a real value equation unless we really start to think about both the quality and the cost involved.”
Roger Shedlin, CEO of White Plains, New York-based OrthoNet, noted that the U.S. is spending more than other countries, but with less to show for it. For example, the UK spends roughly 9–10 percent of GDP on healthcare, while the U.S. spends 18 percent. “Yet, when you look at the relative value, by many measures, of health status and health outcomes internationally, I don’t think we’re doing twice as well as Britain.”
One method employers have used to find value is known as reference-based pricing, which essentially limits what employees can spend on procedures, with the goal of inducing them to find the best bang for the buck. However, this model can be taken to an extreme. “CALpers did a program where they basically laid out a specific price that they would pay for procedures and said, ‘You can go anywhere you want, but this is all we’re paying for’,” says MacLean.” That hasn’t been wildly popular with employees, and no one has really followed suit.”
However, a relatively new version, called focused reference-based pricing, or FACT, works to cap hospital and outpatient facility charges based on average costs primarily tracked by Medicare. The costs are negotiated with the medical facility upfront, before they are incurred. “We’re just now hearing about this from our providers,” said Chuck Ludmer, principal and chief marketing and practice development officer for CohnReznick.
Creating a Culture of Wellness
Of course, the problem won’t be solved with a one-prong approach. “There are certain things we can control, and we would, of course, like to see medical costs going down,” said Farooq Kathwari, CEO of Ethan Allen Interiors. “But that is not all under our control. What we have to do is create a culture of wellness.” By intervening before employees get sick, companies can do a lot to lower their ultimate medical expenses.
“If we look at the determinants of health, what we do in the healthcare system really only accounts for about 40 percent of health,” explained MacLean. “Most of the determinants are things outside of the healthcare system—[such as] lifestyle. There’s a lot that [CEOs] can do with workplace wellness programs.
There’s a lot that you can do as employers, and there’s a lot we can do as a society. We spend a lot of money on healthcare but not on health and wellness.”
Kathwari recounted a lesson learned setting up plants in Honduras and Mexico. “They didn’t have doctors there because they couldn’t afford them,” he said. “They got sick, and then they wouldn’t be back to work for a week.” Ethan Allen decided to provide a doctor and nurses and arranged for employees’ families to come and be screened and treated twice annually. “Because if the children are not well, they don’t come to work,” Kathwari noted.
Since then, Ethan Allen also has set up medical clinics at plants in North Carolina and Vermont “so that people have the ability to come for small things before they get big,” he said, noting that the effort paid off. “We’ve been able to not increase our medical costs in the last four or five years, which is a major undertaking.”
For many, however, the business case for return on investment is difficult to prove, given the many factors involved. “Wellness traditionally is hard to measure an ROI on because it’s over a long time period and over a large population of things that are challenging to measure,” Shedlin noted.
“WE’VE BEEN ABLE TO NOT INCREASE OUR MEDICAL COSTS IN THE LAST FOUR OR FIVE YEARS, WHICH IS A MAJOR UNDERTAKING.”
Yet those companies that have invested do generally find the return. Henry Schein, a Melville, New York-based provider of management solutions for dental and veterinary practices, offers employees a wide variety of on-site screenings, including mammograms, as well as telemedicine access so they can speak to doctors without necessarily having to take time off work for an in-person appointment. “I don’t know that we have all the financial elements of the business case, but we certainly have lots of evidence of chronic diseases caught early,” said Karen Prange, CEO of the company’s Global Animal Health and Medical Group. The earlier those diseases are caught, the easier and less costly they are to manage.
If You Build It, Will They Come?
For a truly effective employee wellness program, employees have to be willing participants and partners, taking advantage of screenings, onsite gym facilities, weight-loss programs and so on. That isn’t always the case. Many employees aren’t accustomed to visiting doctors regularly for checkups and may even be wary of getting negative results.
Some companies employ “carrot” and “stick” approaches to boost involvement. Clint Severson, CEO of Abaxis, a company that manufactures portable blood analysis systems, told the story of a client firm brought in to do onsite screening for companies with high incidences of diabetes and heart disease. Those whose results are high get immediate counseling on how to change their numbers. “They come back three months later and every employee whose blood pressure is down, glucose is down, lipids are down, gets $500 from the employer,” explained Severson. “Then the employer takes those plans and reinforces them, which then causes the insurance rates to come down because they have fewer problems. The insurance company [also] wins because they don’t have as many claims. So look how much you could reduce healthcare cost if every employer put a program together like that.”
Unfortunately, the carrot doesn’t always work. Sterling Talent Solutions of Independence, Ohio, offered lower premiums to any employee who agreed to verify that he or she did not smoke, had gone for a physical in the last year and had a BMI, or body mass index, within normal range. Only 35 percent of employees took advantage of it, reported CEO Clare Hart. “It’s shocking to me the number of people who ignore the emails and don’t go for the discount.”
Those who opt for the stick approach
may get a slightly better result, said Prange of Henry Schein. “If you don’t opt in, your cost of care goes up 5 percent. That works a little bit more effectively.”
Participants around the room agreed that any effort would likely only succeed in the context of a greater cultural shift toward wellness. Hart pointed out that her senior executives model good behavior. “Culturally, from the top, there’s very much a focus on making sure people know the executives exercise and are eating right,” she said.
Kathwari agreed. “You have to make it a part of your DNA of your enterprise that is constantly reminding people, you’ve got to be well and you’ve got to take
care of your family,” he said. “It is our responsibility as CEOs to create that culture.”
As healthcare costs continue to rise, CEOs must find innovative ways to lower expenses.
Workplace wellness programs keep employees healthier, but the culture has to start at the top.
Companies are using a mixture of “carrot” and “stick” approaches to encourage employee participation.
By: C.J. Prince