Jim Summers
Michael Nowicki

A recent study suggests employers are not exercising sufficient leadership to address the quality and cost issues they have complained about for decades.

Providers should help resolve concerns about quality and cost by demonstrating leadership approaches. We advocate a change in emphasis away from consumer-directed health care (CDHC) to stakeholder coalitions that will unlock the potential for healthcare savings that lie with major employers. A stakeholder coalition, for our purposes, is an arrangement among a major employer, a healthcare provider, or set of them (to possibly include physician group practices), and perhaps a health plan that covers a major proportion of the employees of the employer in your local area. The purpose of the arrangement or coalition is to help the employer use its substantial leverage to achieve health gains and cost savings among its employees. Such assistance could include training employees in how to use the healthcare system and understand their bills, working with the employer to improve employee health, tweaking or setting up enterprise software to track the employers' health costs and the employees' health information (staying compliant with the Health Insurance Portability and Accountability Act, the provider can do this with the employees in an aggregate way), and other management innovations and approaches.

We had expected that with the development of business roundtable groups beginning back in the 1970s and with leadership groups such as the Leapfrog Group, employers would have used their power to enact such changes to their benefit long ago. Instead, we find an amazing level of employer inertia that we as providers, perhaps working in concert with the health plans, can help overcome. We came to this conclusion after we analyzed research findings in JAMA (Rosenthal, et al., "Employers' Use of Value-Based Purchasing Strategies," Nov. 21, 2007, pp. 2281-2288). The researchers identified the 26 largest firms in each of 41 U.S. markets and then interviewed executives at 609 of those firms from July 2005 to March 2006. Each market has at least 100,000 persons enrolled in health maintenance organizations (HMOs), includes some 91 percent of persons enrolled in HMOs nationally, and represents 78 percent of the U.S. metropolitan population. The firms ranged in size from 60 employees to 250,000 employees.

Value-Based Strategies Not Valued by Employers

The researchers found that "employers as a whole do not appear to be directly implementing contracting strategies and programs to improve the quality and value of health benefits, except as they relate to supporting improved employee health behavior." Yet some of these employers are members of the Leapfrog Group.a

If major employers will not take the lead, we should provide them with tools and leadership to promote the benefits of value-based strategies. Doing so will require a leadership response at several levels, including major healthcare associations, such as the HFMA, American Hospital Association, and American Medical Association. Major national, state, and local healthcare providers, either individually or in coalitions, can exert considerable positive leverage also.

Why a call for this level of leadership and this task? Richard Clarke, DHA, FHFMA, president and CEO of HFMA, says consumerism is the last bet to stop government control of the healthcare system ("Embrace Consumerism," hfm, June 2006, p. 160).b If consumerism is good for moving the market, value-based strategies at the employer level are an even better tool. Compare the influence of individuals negotiating with healthcare providers or plans with that of employers. Employers decide which plans are available to the employees. Plans tell employees how much choice they will have, what services are available, which providers they can see, and how much they will pay. Employers can structure copayments, deductibles, and coinsurance to motivate employees to use a particular provider. Employers can exert considerable influence over employee behavior, health plan behavior, and provider behavior.

But employers are not using their power effectively. The Rosenthal research showed that only:

  • 65 percent of surveyed executives reported they examine health plan quality data
  • 23 percent use the data to influence employees, e.g., implementing tiered copayments based on performance measures
  • 18 percent examine physician quality information relative to cost and quality measures 17 percent use the data for performance rewards
  • 8 percent use physician data to influence employee choice of providers
  • 2 percent use physician data to reward performance when they achieved better value outcomes

These numbers are staggering. And these are not small firms-225 of the 609 employers surveyed, representing 84 percent of employees, had more than 5,000 employees, while 281 of the firms had 1,001 to 5,000 employees. Thirty-five percent of the respondents do not read the health plan quality reports. Yet a majority, 88 percent, reported offering self-insured plans to employees, while 30 percent reported offering only self-insured arrangements. Benefit managers understand insurance and health care. They are paid to manage and purchase these benefits. Informed purchasers in the private sector managing large sums of healthcare dollars are about as close to a real CDHC model as one can get. When a major employer changes coverage or even the options, the market has to listen.

Why are these major purchasers-the ones who can move markets-doing so little after decades of complaining about high healthcare costs? The Rosenthal researchers found the perceived benefits seem too small to justify the cost. This explanation is plausible for employers with fewer than 1,000 employees. But even in large firms, benefit managers did not see a business case for the cost-saving strategies.

Value-Based Strategies

If employers do not understand the value of these strategies, we can work with them and with health plans that cover them to make these strategies come to fruition. Examples of value-based strategies that would benefit healthcare purchasers include:

  • Collecting data on clinical quality or patient satisfaction indicators, such as Healthcare Effectiveness Data and Information Set (HEDIS®) or Consumer Assessment of Healthcare Providers and Systems (CAHPS®)
  • Offering incentives to health plans and providers for meeting goal-specific performance
  • Making quality report cards on health plans and providers available to employees
  • Selecting health plan projects to foster quality improvement
  • Participating in organizations such as the Leapfrog Group
  • Using tiered copayments to incentivize use of higher-value providers
  • Subsidizing IT infrastructure for local physicians
  • Holding providers to Leapfrog Group standards, such as intensivist staffing of the intensive care unit, computerized provider order entry (CPOE), evidence-based referrals for volume-sensitive procedures, and nurse staffing ratios
  • Improving or maintaining employee health through disease management, health promotion and education programs, health risk appraisals, and on-site healthcare services

Yet despite efforts of the federal government and organizations such as Leapfrog to create and publicize quality measurement, the Rosenthal researchers found that employers still do not put much weight on quality when choosing health plans.

Stakeholder Collaboration to the Rescue

The researchers believe that attempts to alter the dynamics of health plan and provider competition will likely originate from sources other than individual employers, such as private employer coalitions, the public sector, and stakeholder collaborative organizations. They believe collective efforts are the best approach but note that 40 percent of the employers are already in some form of coalition. Thirty-six percent of the responding employers reported Leapfrog Group membership or using Leapfrog standards. In the public sector, the federal government has pushed CDHC, pay for performance, transparency, and privatization for several years.

The remaining option is stakeholder collaborative organizations. These organizations could include a healthcare provider as the spearhead. The organization's management approaches a major employer with programs and expertise to help them realize the benefits of the value-added strategies noted above. Working perhaps as contractors with the employer, they help the employer enable the employees to better use the healthcare system and to better take care of their health, preventively. Only the employer can truly offer incentives to the employees that are likely to influence behavior change over a sustained period. Employers have control of the time and behavior of employees for most of the day. Employees see healthcare providers infrequently. If a major health plan covers most of those employees, the plan may want to partner in the collaboration to help the employees learn best how to use the plan. Healthier employees will benefit the employer, the health plan, and if paid under capitation, the providers. This idea may seem obvious. It's fair to expect benefit managers in charge of millions of dollars of company money to at least read the reports about what is taking place, but according to the research, they do not. So maybe it is time to try the obvious. This is where leadership in our industry comes into play. And this collaboration can help us meet goals of our own, too.

As providers, we also want to implement many value-based strategies, but we face challenges. One example is CPOE, which physicians by and large have resisted. This is a major goal of Leapfrog. A coalition of providers working with major employers or their coalition can show that CPOE works and has positive health and cost effects. The coalition could help employers set up tiered incentives to direct market share to physicians who use CPOE. Resistant physicians who lose business may decide to try the new technology. Physicians who get on board get more money. Last we heard, money still talks.

Providers could assist with many such strategies. A demonstration to employers often makes the business case they say is lacking. Stakeholder coalitions can show employers how to make these things happen. Lacking sufficient leadership in the purchaser community, we providers need to help create it.

Jim Summers, PhD, CHE, is a professor of health administration, Texas State University-San Marcos (summers@txstate.edu).

Michael Nowicki, EdD, FHFMA, FACHE, is professor of health administration and director of the School of Health Administration, Texas State University-San Marcos, and a member of HFMA's South Texas Chapter (nowicki@txstate.edu).


a. Delbanco, S.F., "Fixing a Broken Healthcare System," hfm, July 2005, pp. 72-76.

b. There are serious arguments in favor of active government involvement in healthcare delivery and financing, but this is not the place to take up those pros and cons. At least until Jan. 22, 2009, the government is actively involved in privatization.

Publication Date: Thursday, May 01, 2008

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