Health Care: A Real Fixer-Upper

By Rita Pyrillis

Aug. 30, 2012

In 1929 when Baylor University Hospital began offering prepaid hospital visits for 50 cents a month to a small group of public school teachers in Dallas—a program that would morph into iconic insurance giant Blue Cross—few could have predicted that decades later most Americans would get their health care coverage through their employers. What soon became known as a “fringe benefit” is now an expected part of any competitive compensation package.

But with health care reform unfolding and no end in sight to soaring medical costs, the future of employer-based health plans is unclear. Dramatic changes are under way, and employers are playing a key role in transforming health care delivery. Some are reluctant innovators and others are eager trailblazers, but most have little choice but to roll up their sleeves and look for solutions to a crisis that is threatening their bottom lines and the country’s economy. With national health care spending at $2.6 trillion annually and growing, employers are seeing a greater portion of their labor costs eaten up by medical expenses. In 2010, health care costs represented 12.8 percent of payroll, up from 8.9 percent in 1999, according to a 2012 Kaiser Family Foundation report. Between 1999 and 2009, the average annual premium for employer-sponsored family health insurance coverage rose from $5,800 to $13,400.

While politicians and pundits debate the Patient Protection and Affordable Care Act, often referred to as the ACA, a growing number of employers are forging their own version of reform one workplace at a time. It’s a movement that some call “DIY,” or “do-it-yourself,” health care reform. “Employers are now in the business of population health management, so, yes, they have a sense of urgency,” says Andy Webber, president and CEO of the National Business Coalition on Health. It’s a two-pronged effort to improve employee health and productivity and to get more value for the money, he says. “This challenge has been ongoing for many years and is independent of the ACA and any other legislation.”

Employers are turning to an array of approaches from disease management programs to on-site clinics, direct primary care, value-based medicine and predictive modeling—and many are seeing dramatic reductions in costs and other improvements. Viking Range Corp. in rural Mississippi, where obesity and diabetes are rampant, saw a decline in health care spending two years after redesigning its wellness program to target those conditions. The company analyzed claims data to make predictions about certain behaviors and health outcomes, a process known as “predictive modeling.”

This approach also helped Pitney Bowes Inc., the Stamford, Connecticut-based manufacturer of mail and document management systems, to develop a benefit plan based on the principles of value-based insurance design. Value-based design aims to reduce or eliminate the cost of essential medical care, such as cancer screenings and blood-pressure drugs. Companies such as Caterpillar Inc., Dell Inc., Dow Chemical Corp. and Gulfstream Aerospace Corp. have followed suit, offering medications for chronic diseases at low or no cost to employees.

“I’ve been in the benefits business for 30 years, and for the first time I see change among all stakeholders at the same time: carriers, hospitals, employers are experimenting with all different approaches,” says benefits consultant Jerry Frye, president of the Benefits Services Group Inc. in Milwaukee. “I see an opportunity to manage costs more so than for a long, long time. Some is due to reform, but most is being driven by employers.”

The philosophy behind many of these employer innovations is to shift the focus from cost savings to quality improvement, from access to affordability, and, according to physician Mark Fendrick, “from one-size-fits-all solutions to clinically nuanced benefit design.” Fendrick is the director of the University of Michigan Center for Value-Based Insurance Design, a think tank that promotes benefit plan innovation. The idea is to make essential health care services, such as immunizations, cancer screenings and drugs to manage chronic conditions, more affordable or free, while increasing out-of-pocket costs for services that provide less value, like MRIs for simple lower back pain or electrocardiograms, or EKGs, for low-risk patients, Fendrick says. In other words, getting more bang for your buck. Value-based insurance design is embraced in a provision of the 2010 health care reform law that eliminates copayments for certain preventive-care services.

Many employers have adopted this approach to include office visits, diagnostic tests and treatments for common chronic conditions such as asthma, diabetes and heart disease. According to a 2012 Towers Watson & Co./Midwest Business Group on Health survey, 34 percent of companies could adopt this approach by 2013, compared with just 15 percent today. While an accurate number of employers using value-based design is hard to determine, Fendrick says, there are 350 employers in the University of Michigan Center for Value-Based Insurance Design registry.

Value-based design may be generating interest of late, but it’s not a new concept. In 1996, the city of Asheville, North Carolina, launched the movement when it began offering free medication and health care counseling to diabetic employees to reduce costs. At the time about 8 percent of the city’s workforce suffered from the disease. By 2003, the city was saving between $1,200 and about $1,900 per patient per year, according to a study in the Journal of the American Pharmaceutical Association.

Pitney Bowes was one of the first private employers to adopt this approach when it began waiving copayments for drugs to treat diabetes and heart disease in 2001. By 2006 medication adherence rates improved from 38 percent to 54 percent, according to a study in the Journal of Managed Care Pharmacy. When compared with other firms of similar size during that period, Pitney Bowes’ health care costs were about 20 percent lower, which translated into about $40 million in avoided costs.

“The focus on health care costs has to shift from how much you’re spending to how well you are spending it,” Fendrick says. “I want to give credit to the employers because this cost-to-value shift is being driven by market-based reformers. The Congress and Obama saw what they were doing and embraced that. The fact that we don’t buy the services that get the most health for the money is the fundamental problem.”

Workplace clinics have been around since the post-war manufacturing boom, but employers are retooling this model to meet the needs of today’s workforce. These clinics dispense far more than bandages and aspirin and are just as likely to be found at a high-tech Silicon Valley startup as they are on a manufacturing floor. Many offer full-service health care with primary-care doctors and specialists such as cardiologists, endocrinologists and dermatologists.

Interest in on-site clinics has surged in recent years, according to Grand Rapids, Michigan-based health care consultant Mike La Penna. One reason is that employers have become increasingly concerned about improving access to health care, not just lowering costs, he says.

“This was a new idea we hadn’t picked up on before,” La Penna says. “Employers are becoming more and more concerned that they are paying for benefit programs, but employees are facing access problems in the community, like not being able to get an appointment for weeks.” And the inability to get in to see the doctor can mean more sick days and lower productivity, which is costly.

Few companies have taken the concept of comprehensive care to the level of QuadGraphics Inc., a Sussex, Wisconsin-based printer and pioneer in the development of workplace clinics.

The company runs five health centers—three near Milwaukee that offer primary care, dental and vision care, and specialties such as cardiology, dermatology, obstetrics and gynecology, pediatrics and orthopedic surgery. There is also a pharmacy, laboratory, X-ray, rehabilitation clinic and fitness center. The other clinics, which are in Saratoga Springs, New York, and Martinsburg, West Virginia, have similar offerings, minus dental or vision care.

At the West Allis, Wisconsin, plant, the clinic is a short hallway walk from the production floor where forklifts shuttle giant paper rolls to the printing presses. On a recent visit, the large waiting room is quiet except for a woman and her toddler there to see the pediatrician. “Summer is always slow,” says QuadMed’s chief medical officer, Raymond Zastrow. QuadMed is a subsidiary of QuadGraphics that was formed in 1990 to run the company’s health centers.

The clinics’ focus is on preventive care and chronic disease management and avoiding costly hospitalizations, expensive brand-name drugs and unnecessary medical tests. “We consider an ER visit or a hospital visit as a failure of our system,” Zastrow says.

While the company spends more on primary care per patient than the average employer, it pays less for hospitalizations, according to Zastrow. The company offers a point-of-service health plan that covers specialty and emergency care not available at the clinics. This has slowed the rate of health care cost increases. Since 1999, costs at QuadGraphics have risen at an average annual rate of 6 percent compared with 8.3 percent at other Midwest companies, according to a 2010 Mercer study. In 2008, the company’s health care costs per employee were $2,500 lower than those of other regional employers. About 85 percent of the company’s 9,000 employees get their medical care at one of the in-house facilities.

QuadMed’s success in lowering costs and improving health outcomes has led other companies to seek their help in developing similar clinics. The company has established clinics for local employers Briggs & Stratton Corp., MillerCoors and Northwestern Mutual.

A newer development, and one that is likely to get more attention in the next two years, is direct primary care. Starting in 2014 direct primary-care providers will start competing for employers on the insurance exchanges established by the health care reform law.

It’s a twist on “concierge medicine” where wealthy patients pay a doctor a steep annual fee or retainer for unlimited access to medical attention. Direct primary care is the populist version with a more affordable monthly membership fee, usually less than $100. Typically, an employer picks up part of the cost. Doctors have lighter patient loads, and that means they are more accessible, including nights and weekends and through email and telephone consultations.

Direct primary-care providers receive a salary, unlike most physicians who are paid per service, which allows for more time with patients. Appointments typically last up to an hour. There are no insurance claim forms to fill out or deductibles to meet. Everything is covered by the monthly fee.

While direct primary care is not an insurance product, when paired with a “wrap around” insurance policy to cover specialized and emergency care, direct primary-care clinics will be allowed to compete on the exchanges. Such a product has yet to be developed, according to providers who envision a policy customized for direct primary-care practices that would cover services not offered by the practice.

Proponents, like Dave Chase, CEO of Avado, a health care technology startup, compare the direct primary-care model to auto insurance.

“Do you pull out your auto insurance card when you go to Jiffy Lube? Of course not,” he says. “So why do you do it for health care? You shouldn’t use insurance for the predictable day-to-day stuff, like changing your tire or getting a flu shot. Insurance is for the unexpected, catastrophic events.”

The concept is new enough that many in the insurance industry haven’t heard of direct primary care. A spokesman for America’s Health Insurance Plans, a health insurance industry trade association, says he has no information on the trend. “I haven’t seen the data.”

But in Washington state, the birthplace of direct primary care—the first clinic opened there in 2007—some insurers are wary of the concept, says Erika Bliss, a physician who is president and CEO of Qliance in Seattle. Qliance was the first direct primary-care network to set up shop in the state.

“We’ve said from the beginning that we’re not anti-insurance, but primary care is a routine and predictable event,” she says. “So, why not divide it up and let us handle the routine care and let insurance cover what they need to? We reduce risk for insurance companies, and that’s appealing.”

She says that Qliance has been meeting with insurance companies to develop a wrap-around policy and that interest is growing among insurers and employers.

Starting this fall, Qliance, which has five clinics in Washington state, will have some competition when Monterey, California-based MedLion Direct Primary Care sets up shop in the Tri-Cities area of Washington. It’s the company’s first foray outside of California where it has five clinics, including one in Fresno that caters to a large population of migrant farm workers. It also plans to open clinics in Miami, Las Vegas and Portland, Oregon, among other locations, within the year, according to Samir Qamar, a physician who is the company’s president and CEO.

MedLion is pushing hard to sign up employers in Washington. Robert Anderson, a benefits consultant in Kennewick, Washington says that interest is high but some employers are skeptical. Anderson is working with MedLion to sell to regional companies. They “see that they can save a lot of money with a DPC structure, but no one believes anyone can do it for the monthly fee or that by not billing insurance we can save them a lot of money and time. They also want to know the employees can actually get in to use the clinic and that there won’t be this bottleneck with employees having to go somewhere else.”

Anderson points out that a doctor typically has a patient base of about 2,500, but at MedLion each doctor handles about 1,000 to 1,500 patients allowing for greater access. “Everyone is taken aback at first because we’re taking the medical-care model and setting it on its ear,” Anderson says. “It’s a hard concept for everybody. Things are changing dramatically, and it’s going to take time for everyone to figure it out.”

The coming changes to health care delivery will likely be challenging for all stakeholders. What the system will look like in the future is anyone’s guess, but Larry Becker, director of plan administration for Xerox Corp. expects tremendous innovation ahead. Becker is a frequent speaker on the role of employers in shaping health care delivery.

“We will learn a great deal from data derived from electronic medical records and that will drive much of the changes to come,” he says. “With data and the applications of some very smart people will come innovations that we can’t even imagine today. Look at Apple. People weren’t looking for an iPhone or a tablet but [Steve] Jobs said that this is what their latent needs are and look what happened. The same will come with health care.”

Rita Pyrillis is Workforce’s senior writer. Comment below or email

Workforce Management, September 2012, pgs. 22-27Subscribe Now!

Rita Pyrillis is a writer based in the Chicago area.

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