Ask Benny: How can employers find better value for their healthcare dollar?

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Everyone likes to point fingers about where the responsibility for the high cost of healthcare in the U.S. lies. For an aging population, chronic disease, new technologies and specialty drugs all play a part, most of what is making healthcare unaffordable is something that can be negotiated.

Employers need to figure out a way to get better value for their healthcare dollars, even though they have little leverage in any one area.

To start, employers must demand greater transparency from providers to determine what’s driving the financial strain in covering their healthcare costs.

For close to a decade, employers and other healthcare purchasers have put energy into ensuring that employees have access to quality and price information, so they can make smart healthcare choices. While some consumers have the inclination to seek this information, strong incentives to use it, consumerism hasn’t quite taken off the way many purchasers hoped.

Sometimes these efforts to provide quality and price information are foiled by the demands of hospitals not to share information about their performances or prices and health plans agreeing to contract provisions that prohibit them from sharing this information.

However, some employers have recently begun to create a workaround. The Employers’ Forum of Indiana, working with RAND, amassed claims data from self-insured employers and some health plans and identified the relative prices they were paying to hospitals in Indiana, as compared to Medicare payment amounts. They found significant variation in prices.

Employers are now building on this study to analyze how the prices in Indiana compare with those in other states. This effort may be a prelude to amassing purchaser negotiating strength and pushing for hospital pricing to be a fixed standard amount, such as 150% of what Medicare pays. The State of Montana has already pulled this off for its employee health plan.

Barring any approach as drastic as that, employers can invest more heavily in the things others have already been trying. These tactics include narrow and tiered networks, reference pricing, centers of excellence programs, telehealth, onsite and near-site clinics — all of which can steer consumers to higher value providers.

These strategies would have been unthinkable a decade ago, but not anymore. We are aware of three large private employers that launched narrow network options tied to an accountable care organization, which lead to much higher enrollment than expected. The lower premiums and cost sharing were enough to convince some employees that choice isn’t everything.

Through these strategies, consumerism may finally take hold in a way that puts high priced providers on notice, like when CalPERS implemented reference pricing for joint replacements and some high priced providers asked to renegotiate so they wouldn’t be excluded from CalPERS’ business. If more purchasers institute these strategies, their theoretical leverage as the healthcare system’s customers may finally become real.

If all else fails, employers and other health care purchasers can advocate for new state laws. Some states have instituted policies that help control health care spending on hospital services, including Maryland and Rhode Island. While most employers want to let market forces work, ultimately, government intervention may have its place.