Scott MacStravic, PhD
I still recall the time a few decades ago when organizations devoted to “hospitals” changed their names to “healthcare”, in order to indicate their broadened view of the business they were in. Graduate programs in hospital administration, publications such as “Modern Hospital”, and even hospitals, themselves, adopted healthcare instead. By making the two words involved into one, they enabled retaining the same initials, though, as is true of so many things, agreement has not been reached about whether health care is one word or two, should be hyphenated, or how it should properly be spelled.
The role of a hospital has changed over the centuries, but it has generally been understood to be a place for sick people – to rest and be tended originally, then more to be cured or at least afforded all available opportunities to return to normal in more recent times. Hospitals have actually been engaged in health care rather than sickness care in only the limited community benefit screenings and immunizations they have offered as parts of their missions. Some have also invested in proactive health efforts to keep frail elderly people from needing sickness care, often because they represent unprofitable patients when they need such care, because they require much more care for a longer time than case-based payment covers.
Fortunately, the third party payers that deliver the vast majority of the revenue that hospitals and other “healthcare” organizations depend on for their survival, have always paid fairly well for sickness care. Ever since the depression and WWII fostered medical care insurance and led it to become the principal source of healthcare revenue, employers, insurers, and government agencies have paid -- if grudgingly, miserly, slowly, and selectively – for the sickness care delivered by HCOs. They have, if anything, been even more parsimonious when it comes to real health care, reinforcing the focus of HCOs on sickness care.
But there are signs that this may be changing. Employers have invested in “worksite wellness” and “health promotion” for decades, finding that it reduces sickness care and even workers compensation and disability costs. Insurers, after ignoring the implications of the “Health Maintenance Organization” label for decades, have gradually invested in proactive health, first in disease management, and more recently in disease risk conditions and behaviors, in order to reduce their sickness care obligations. And even governments have belatedly joined the ranks, primarily in disease management, but also in risk conditions and behaviors to a limited degree.
A recent article has described a previous employer strategy that is apparently being resurrected – “eliminating the middlemen”. The idea of direct contracting with HCOs and physicians has been around for some time, and lost favor after a brief popularity, but is coming back. Employers are desperate enough in their quest for sickness care and labor cost control to try almost anything, and larger employers are trying again, by contracting directly with providers for services, and getting away from pharmacy benefit management organizations that tend to promote their own rather than their clients’ interests.
What is different about this renaissance of direct contracting is that it reflects employers’ interests in promoting their employees’ health, not merely the traditional benefit of protecting them from the burdens of sickness care costs. Their pharmacy benefit management efforts include special handling of drugs that are essential and effective in managing chronic diseases -- to reduce crises, complications, and worsening thereof – and in managing risk conditions – to keep them from becoming acute or chronic diseases. Typically this means eliminating or at least dramatically reducing co-payments or co-insurance on such drugs so that employees and their dependents have one less barrier to adhering to disease/risk management regimens.
Employers who contract directly with providers usually include a significant amount of real health care along with sickness care in their arrangements. Perdue Farms, one of the examples of the new direct contracting employers, includes onsite medical care, with an emphasis on keeping employees well, not merely saving time and costs on sickness care. As usually the major employer in the 15 rural communities where it has plant locations, it has the market clout to greatly influence how local hospitals and physicians operate.
Employers have far greater motivation for “buying health” than do insurers or governments, since they can gain vastly greater financial benefits from doing so. Where insurers and governments can only benefit from reduced sickness care costs, employers can benefit from both cost savings and revenue enhancements related to improvements in employee health, morale, productivity, commitment, tenure, and quality of performance.
And these possible benefits are by no means theoretical. While employers in the US have primarily focused on the more easily measurable direct cost savings in medical/hospital care, workers compensation and short/long-term disability insurance or direct costs, some here, as well as many more in Europe have reported savings in reduces absences, increased productivity while at work (“presenteeism”), fewer errors, lower turnover, and similar costs that typically represent multiples of the direct costs most US employers focus on.
And at least a few have discovered and given their employee health investments at least partial credit for improved customer service, retention and loyalty, with the market share and revenue benefits thereof. And a few have extended their view of employee health effects to increases in new business and new customers, higher profits and increased growth over time. While putting explicit, precise and accurate figures on these highly indirect benefits is difficult indeed, such financial performance improvements are generally welcomed as “frosting on the cake” after other benefits have been determined.
If more employers begin to buy health, shifting more of their employee health investments to efforts aimed at reducing the incidence and prevalence of disease and injury, rather than paying for the treatment thereof, it could mean major impact on HCOs and physicians. It could create a new era of importance and compensation for primary physicians and specialists who focus on proactively managing chronic diseases rather than reactively treating them, while creating a dramatic decline in the fortunes of specialists who depend on sickness care “procedures” which would be less often demanded among healthier and better managed patients.
And it could have the same impact on hospitals and other HCOs that depend mainly if not totally on sickness care revenues. The “new consumerism” is already supposed to make consumers both more prudent purchasers of sickness care and more careful managers of their own health, since they will be protecting their own money, rather than spending their employer entitlements. But a “new employerism”, where their focus is on promoting and enabling significant improvements in employee and dependent health could be even more devastating to the fortunes of sickness care providers, while that much more benevolent toward true health care providers.
And as employers lead the way, health insurers are sure to follow, increasing their own investments in proactive health efforts that both improve employee health and reduce sickness care costs. This will be increasingly essential to their ability to retain employer clients and keep them from eliminating insurers as mere middlemen. Most employers do not wish to have the responsibility for managing their employees’ health. It can be onerous and expensive for them, plus introduce all kinds of employee information confidentiality and trust issues.
Southern California Edison, for example, tried direct contracting in the early 1990s, and found that it had decreased its sickness care cost burden by 20%, not even counting other direct and indirect cost savings. But to achieve this benefit, it had to create and maintain a 300-person department, with all its labor costs and management oversight, and this was hardly its core competence or core business. So it gave up the ghost in 1995, and returned to the more traditional role of health insurance customer.
Whether governments will follow is open to question. Current proactive programs, principally confined to disease management and short-term sickness care cost reduction, have typically been found to be, at best, a “mixed bag” in terms of net cost savings. And since this is the only area that governments care about, compared to the vastly greater savings and economic benefit that employers gain, this may keep governments with only a toe in the water. But if ever politicians look further into the future, even they are likely to realize that reducing the incidence and prevalence of disease and injury, if cost-effectively done, is a far better approach to reducing future crises in Medicare and Medicaid than any other option under consideration.
As employers generally begin to appreciate and achieve the kinds of total economic impact on overall labor costs and customer revenue that is possible and has been found through improving employee health, many more are sure to begin buying health vs. limiting themselves to sickness care. And when that happens, so-called “healthcare” providers will find a significantly, if not dramatically transformed market for health services, which they can either be prepared to meet or be run over by.
[Note: the article mentioned above, and the source of both the Perdue Farms and Southern California Edison examples, is P. Wassel, et al. “As Health Middlemen Thrive, Employers Try to Tame Them,” Wall Street Journal Dec 29, 2006 pp. A1, A4]
