Achieving High-Performance Healthcare Purchasing: The Power of 3 in an Active Management Ecosystem
The U.S. healthcare system is rife with inefficiencies, with an estimated 30% of total healthcare spending classified as waste—nearly $1 trillion annually.
This waste stems from many factors, including significant:
• Fraud, Waste, and Abuse: Pervasive inefficiencies within the system inflate costs without providing corresponding value to employers or employees.
• Underinvestment in Primary Care: The healthcare system disproportionately focuses on specialized, high-cost treatments rather than preventive and primary care, leading to avoidable complications and expenses.
• Lack of Price Transparency: Employers and patients often cannot access clear information about healthcare service costs, making it difficult to make informed decisions and allowing for inflated prices.
• Misaligned Incentives: The fee-for-service model rewards quantity over quality, encouraging unnecessary procedures and higher costs without improving outcomes.
• Limited Employer Control: Employers frequently have minimal influence over healthcare plan design and management in the fully insured domain, resulting in plans that fail to align with workforce needs or cost-saving goals (take what you get and like it).
• Administrative Complexity: The intricate web of billing and insurance-related processes increases overhead costs and diverts resources away from patient care.
• Fragmented Care Delivery: Poor coordination among healthcare providers leads to redundant tests, conflicting treatments, and gaps in patient care.
• Overreliance on Emergency Care: Insufficient access to primary care drives patients to seek non-emergency treatment in emergency rooms, where care is significantly more expensive.
• Pharmaceutical Pricing Practices: Lack of regulation and transparency in drug pricing results in exorbitant medication costs, burdening both employers and employees.
• Defensive Medicine: Fear of litigation prompts healthcare providers to order unnecessary tests and procedures, further escalating costs without enhancing patient care.
• Health Literacy Gaps: Patients often lack the necessary information to make informed healthcare decisions, leading to misuse of services and increased expenses.
• Chronic Disease Mismanagement: Inadequate management of chronic conditions results in preventable complications and hospitalizations, driving up healthcare costs and diminishing quality of life.
These inefficiencies are mostly driven by systemic misalignment and fragmented care. For employers, this represents an enormous opportunity to take control and drive better LONG TERM results by embracing a proactive, actively managed healthcare model.
Employers perpetuate these inefficiencies by relying on traditional brokers and fully insured plans that lack transparency and accountability. Adding to this challenge is the misalignment of incentives created by the Medical Loss Ratio (MLR) requirements under the Affordable Care Act (ACA).
Misaligned Incentives: The Role of MLR in Healthcare Costs
Under the ACA, fully insured plans are required to spend:
• 80% of premiums on healthcare services for small group and individual plans.
• 85% of premiums on healthcare services for large group plans.
While this ensures that a significant portion of premium revenue goes toward healthcare rather than administrative costs or profits, it also ties insurance carrier profits to premium amounts. This creates a misalignment with employer interests:
1. Fixed Profit Margins Tied to Premiums:
Insurance carriers are allowed to allocate 15-20% of premiums to profits and administrative expenses. As a result, higher premiums translate into higher absolute profits, giving carriers little motivation to reduce costs.
2. Cost-Reduction as a Revenue Threat:
Any reduction in healthcare costs directly reduces premium revenue and, consequently, the pool from which carriers calculate their profits. For carriers, controlling costs effectively puts a noose around their own financial performance.
3. Limited Incentive for Innovation:
Fully insured carriers face little financial incentive to adopt cost-reducing measures or innovative solutions, as these may lower overall premiums and negatively impact revenue.
Employers relying on fully insured plans are trapped in this misaligned system, where carriers prioritize revenue over cost containment. The solution lies in adopting self-funded plans, which bypass these conflicts and align incentives with employer goals.
Fully Insured vs. Partial Self-Funded Plans: A Paradigm Shift
Employers have two primary healthcare purchasing options, each with vastly different outcomes:
• Fully Insured Plans:
• Employers pay fixed premiums to carriers, who assume the risk for claims.
• Carriers benefit financially from higher premiums due to the MLR structure.
• Employers have limited control or visibility into claims data or cost drivers.
• Partial Self-Funded Plans:
• Employers pay claims as they occur, assuming financial risk but retaining any savings.
• Full access to claims data allows for strategic management and cost control.
• Employers can partner with Health Rosetta-aligned advisors and innovative vendors to create a value-driven ecosystem that reduces waste and improves outcomes.
Shifting from fully insured to self-funded plans empowers employers to take ownership of their healthcare strategy, eliminating waste and driving meaningful results. It's the only way for employers to achieve the Triple Aim!
The Key Players in a High-Performance Ecosystem
To achieve the Triple Aim of Healthcare, three critical players must be integrated into the employer’s healthcare strategy:
1. The Health Plan Advisor: The Strategic Steward
Role: The equivalent of a Fractional Chief Health Plan Officer
A Health Plan Advisor serves as the strategic guide for employers, acting as the equivalent of a fractional Chief Health Plan Officer. Unlike traditional brokers, who often prioritize commissions over client outcomes, a high-performance advisor aligns with Health Rosetta principles, emphasizing transparency, accountability, and value-based care.
Unique Contributions:
• Addressing Waste: By analyzing claims data, negotiating provider contracts, and eliminating unnecessary services, advisors tackle fraud, overtesting, and administrative inefficiencies.
• Creating Transparency: Advisors ensure employers have access to clear, actionable data about costs, claims, and vendor performance.
• Optimizing Plan Design: Tailoring plans to workforce needs minimizes misuse of resources and aligns with employee and organizational goals.
• Eliminating Misaligned Incentives: Advisors eliminate the commission-driven misalignment that traditional brokers perpetuate.
Through these efforts, Health Plan Advisors align organizational goals with healthcare outcomes, reducing costs while enhancing employee well-being.
2. Nurse Advocates: Trusted Caregiver and Navigator
Role: Clinical Relationship Builders and Member Guides
Nurse Advocates provide critical support in reducing fragmented care and addressing gaps in patient understanding and engagement.
Unique Contributions:
• Streamlining Care Delivery: Nurses reduce fragmented care by coordinating services and ensuring patients receive the right care at the right time.
• Enhancing Preventive Care: Early intervention and proactive management of minor health issues prevent costly complications.
• Improving Health Literacy: Nurses empower patients to make informed decisions, reducing the misuse of services and defensive medicine practices.
• Personalized Member Support: By building trust and rapport, Nurse Advocates guide employees through complex care pathways with confidence and clarity.
Nurse Advocates are an indispensable link between employees, providers, and the health system, ensuring care is delivered efficiently and effectively.
3. Family Medicine Physicians: The Clinical Backbone
Role: Comprehensive, Relationship-Based Healthcare
Family Medicine Physicians are the foundation of a high-performance healthcare ecosystem, addressing 80-90% of healthcare needs at their root.
Unique Contributions:
• Reducing Reliance on Specialists: By managing most conditions directly, family physicians minimize costly and often unnecessary specialist referrals.
• Proactive Chronic Disease Management: Early interventions for chronic conditions lower long-term healthcare costs.
• Lowering Emergency Room Utilization: Effective primary care reduces avoidable emergency room visits.
• Integrating Care: Acting as a central touchpoint, family physicians foster continuity and coordination, reducing fragmented care.
By anchoring the healthcare ecosystem in primary care, Family Medicine Physicians ensure patients receive cost-effective, relationship-driven care.
A Future Defined by Employer Leadership
The difference between active and passive management could not be more consequential. Employers who continue to rely on passive approaches—fully insured plans and traditional brokers—are effectively surrendering control of one of their most critical assets: the health and productivity of their workforce.
Conversely, employers who take the reins of their healthcare strategy through active management have the power to reshape the future of their organizations. By aligning incentives, reducing waste, and fostering a culture of well-being, they ensure that every dollar spent on healthcare contributes to long-term organizational success.
The Cost of Inaction
Employers who fail to act risk significant consequences:
• Rising healthcare costs will erode profitability, placing financial strain on the business.
• Employees will face mounting health challenges, reducing productivity and morale.
• Talented individuals will gravitate toward organizations with better benefits, leaving the company less competitive in the marketplace.
• The overall well-being of the organization will deteriorate, jeopardizing its ability to achieve its mission.
A Call to Action
By embracing active management and integrating the power of three—Health Plan Advisors (a Certified Health Rosetta Advisor preferably), Nurse Advocates, and Family Medicine Physicians—employers can reclaim control and chart a course toward sustainable success and Triple Aim outcomes.
The future belongs to those who act decisively. Employers who prioritize both organizational and employee well-being will not only weather the challenges of a fragmented healthcare system but thrive in the face of them over time.
Parting Thought
Making change takes a little time and effort. Most employers embrace the crawl - walk - run - fly approach. The famous thought leader Simon Sinek captures the concept of change brilliantly when he stated "people like evolution not revolution" and we agree!
In the end the kitchen always gets a little messy when you prepare a great meal to serve to your family or guests. That's okay and part of process. Achieving great things always take a little time and effort. Just know that the 3 Partners - the Advisor, the Nurse Advocates and Family Doctors do the majority of the heavy lifting!
