The American healthcare system has unique financial hydraulics, a sophisticated and opaque “Game” that depends on self-insured employers to make and keep providers whole for the perceived “underfunding” by public payers like Medicaid and Medicare. Both doctors and hospitals are completely dependent on the financial margin derived from commercial insurance. RAND studies show that on average, private purchasers are paying approximately two and a half times more than Medicare rates for hospital care (even more relative to Medicare for hospital outpatient services).
The COVID-19 pandemic has only intensified this dynamic. Despite massive federal spending, employers fear that an overwhelmed health system may look to them to solve the financial pressures created by the pandemic — compressed financial margins, increased supply and labor costs, and greater intensity and complexity of care required by patients.
Large companies want and need the existing healthcare system to work. But to date, too many solutions to fix what’s broken have amounted to a version of MTV’s “Pimp My Ride.” We take a chassis and engine in bad shape and bolt advanced technology to a frame that is tired, old, and ineffective. Large employers are no longer willing to play this game or continue to extend blank checks to hospitals, doctors, health plans, and consultants with no regard for quality and proof of outcomes.
Drafting a New Team: Where Employers Are Heading
Many of the top U.S. corporations, including Disney, Walmart and Boeing, are partnering with private organizations and non-profits to start new enterprises aimed at changing the rules of the game by leveraging their vast buying power to attack inefficiency. Rather than a “Pimp My Ride” approach, they’re increasingly thinking about how to create a new, high-functioning vehicle by pushing fundamental changes in the way clinical services are conceived, priced, and delivered in five broad areas.
Setting Standards and Buying Into Them
Increasingly, large, self-insured employers are focused on working with entities that meet their standards for quality and service and are open to meaningful measurement of their performance. We will see more companies move away from one-size-fits-all arrangements with large health systems and health plans that continue business-as-usual. And they will work with providers willing to move away from the fee-for-service system (to which employers recognize they have contributed), which doesn’t allow for the kind of care they know will keep their employees healthy. Some large companies are making a firm commitment to change payment within 3 years so that integrated care focused on health outcomes and wellbeing can flourish.
Resisting Provider and Payor Consolidation
Large employers will continue to scrutinize further consolidation in the healthcare system, despite the unfounded argument that it is somehow better for the consumer. And they’ll push for limits on anti-competitive business practices that have needlessly and intentionally increased costs, using the Sutter Health lawsuit as a template.
Disciplined Purchasing of Digital Disruptors
As enormous sums of money continue to pour into so-called “digital disruptors,” large employers want to know which solutions actually do what they claim, and they are turning to outside organizations to help them deal with the onslaught of sales pitches and to assess new companies with clinical rigor and outcomes data. These evaluations will help large companies make buying decisions.
Holding Intermediaries to Account
Large employers are also more aggressively holding industry middlemen they hire to fight for them and their employees accountable for performance on costs and quality, whether they be consultants, health plans, or pharmacy benefit managers. The historically unmet expectations of employers that their vendors be transparent about how their money is spent will transform with the fiduciary requirements of the Consolidated Appropriations Act of 2021 and as self-insured employers face new obligations to demonstrate the value of the services they buy.
Targeted Public Policy Initiatives
Finally, with support from skilled coalitions, large, self-insured employers are more vigilant in looking for policy solutions where the market has failed. This has been the route to success in advocating for an end to surprise billing, demand for hospital price transparency, and provisions in the Balanced Budget Act to extend negotiated pharmacy discounts to commercial payors.
In the end, failing to take bold action to fix healthcare and change the “Game” employers fund while others profit is now a greater threat to their business and their employees than continuing along the current path. But even the largest employers know they cannot change the system alone. The way to get it done is to increase their firepower by joining together with other private and public purchasers to put pressure on the healthcare system to improve its performance. The “Game” has to change, and many of this country’s largest employers are taking bold steps to do just that.
Elizabeth Mitchell is CEO of Purchaser Business Group on Health, a member coalition of some of the largest employers in the U.S. Ian Morrison, PhD, is an internationally known author, consultant, and futurist specializing in long-term forecasting and planning with particular emphasis on healthcare and the changing business environment.
Morrison has for decades been a paid speaker and advisor to many parts of the healthcare ecosystem including hospitals and health systems, health plans, employers, and pharmaceutical and medical technology companies. He is currently a Board member of the independent non-profit Martin Luther King Community Health System in Los Angeles, a senior advisor to Leavitt Partners, a member of the Founders Council of the United States of Care, and a senior advisor to Concord Health Partners, a private equity firm.