Employer clinics are starting to push hospitals and doctors to do something radical: Quote upfront prices and stick to them.
If the clinics, which have proliferated in Indiana over the past decade, can get that practice to spread, it could transform all of health care in Indiana.
Health care providers would have to take on responsibility for keeping the cost of care below the prices they quote. And employers would have the information they need to steer patients toward health care providers that offer the best mix of price, quality and convenience—and away from those that don’t.
In short, employers could create a true market for health care services—with the lower prices, higher quality and better service it tends to yield.
“Employers are critically important. They are the ones paying bills. Everything is going to shift to where the money is,” said Mary Delaney, an employer consultant at LHD Benefit Advisors, an Indianapolis-based benefits consultancy.
Not everyone is convinced employer clinics will disrupt the health care market.
Dr. Ben Park, CEO of American Health Network, which operates 14 clinics for employers covering about 5,000 patients, said during the IBJ Health Care & Benefits Power Breakfast on Sept. 26 that clinics can produce savings for employers. But Park doesn’t see them spurring broader changes in the marketplace—mainly because they have been around for decades, especially at large employers like Eli Lilly and Co., without producing major changes.
“If that trend were really disruptive, I think it would’ve been disruptive 30-some years ago. It wasn’t,” he said.
Indeed, the role of employer clinics in this shift is hardly certain, and employers have other ways of trying to take a more active role in purchasing health care services to halt their galloping growth in cost.
But the recent growth of employer clinics at least makes it possible they could be a force for great change.
More than 170 employer clinics around Indiana are operated by hospital systems, large physician practices and independent firms. The clinics are available to more than 200,000 Hoosiers—less than 10 percent of those with employer-sponsored health insurance.
The independent firms—including Activate Healthcare, OurHealth, QuadMed, RepuCare, We Care and others—account for more than half the market. Those numbers are getting big enough that the clinic operators can command special pricing and service guarantees from major health systems.
And that’s exactly what the clinic operators are starting to do.
All employer clinics negotiate directly with lab testing companies and prescription drug suppliers to get better pricing. Now, Indianapolis-based Activate Healthcare, which operates 18 clinics around Indiana, is seriously mulling the next step: striking deals with providers of diagnostic services—colonoscopies, Pap smears—and possibly even consultations with cardiologists, digestive tract specialists, psychiatrists and other specialists.
Activate’s employer clients most likely would make it cheaper for workers to see these providers and, in exchange, the providers would promise lower prices or speedier access or both.
“As we accumulate a certain number of employees in a defined area, we’re thinking more strategically about alignment with specialists,” said Nathan Mowery, president of Activate’s Indiana region. Its 18 Indiana clinics cover 44,000 people at such companies as Monarch Beverage and Major Tool & Machine.
For Mowery, the key is to avoid unnecessary care that often occurs when doctors don’t communicate well with one another. He wants relationships where providers report back quickly to Activate—via electronic records if possible. But if Activate can also use its size to get bulk discounts, it might do that, too.
“Price could definitely be involved, as well,” Mowery said, “but I think the biggest savings will come from the coordination of the care. That’s where the cost is in the equation—it’s the poor handoffs.”
OurHealth, another Indianapolis-based operator of employer clinics, is going a step further. It has been soliciting bids from major hospital systems for diagnostic services and even surgical procedures. It plans to feed those price quotes—along with information about the quality, location and availability offered by each provider—into a Priceline-like software tool.
OurHealth hopes to launch that tool by year end. It would be used by a team of referral specialists to help employees at OurHealth clients choose the provider that’s best for them.
Later on, OurHealth hopes to make its tool available to anyone—whether or not they are part of an OurHealth employer clinic. It operates 20 clinics, covering 30,000 people, for such clients as Interactive Intelligence, OneAmerica Financial Partners and CNO Financial Group. OurHealth expects to have 60,000 people using its clinics next year.
“We recognize that we actually have enough scale and enough experience to do this,” said OurHealth President Dr. Jeff Wells. “We’ve got proposed pricing from most of the folks in town on a whole host of services. And they’ve been very competitive.”
Brose McVey, CEO of a clinic called Expedite Healthcare, which aims at small businesses and individuals, is seeing the same thing when he negotiates deals on behalf of Expedite’s cash-paying customers. The savings on X-rays and lab tests can be 80 percent to 90 percent. He’s even exploring discounts on orthopedic procedures and specialty consultations.
“Most providers that are independent will be very aggressive on that, because they’re in an environment where bad debt [is rising], high-deductible health plans are leaving more unpaid bills, and [they want] fewer headaches with processing claims with insurers,” McVey said. “We manage our referrals very aggressively for our clientele. So we’re shopping the market.”
Hospital systems are also willing to consider different ways of contracting because they need all the patients they can get, said Elizabeth Walker, a senior manager at ECG Management Consultants.
Three of the four largest hospital systems in Indianapolis saw fewer patients last year. And since more and more patients have large deductibles on their insurance policies, hospitals are expecting more of them to see doctors less and seek out lower-cost alternatives, such as retail health clinics at such stores as Walmart and Walgreens.
“Hospitals are trying anything they can to get patients in the door,” Walker said.
A hospital executive on the power breakfast panel, Ryan Kitchell, chief financial officer of Indiana University Health, said his system supports on-site clinics.
IU Health has 35 clinics across the state that send patient information via electronic health records, which enables primary care physicians and hospitals to know about patient histories.
“They hit on access and affordability, two things we think are great for health care,” Kitchell said.
Apples and oranges
The trouble for hospitals, Walker said, is that their accounting practices have never been able to attach precise expenses to specific kinds of procedures. And that makes quoting prices upfront a dangerous game for them.
“It’s going to be hard for the hospitals to figure out what the right price is to get patients in the door without losing their shirt,” she said.
Indeed, it’s hard to overstate how different that kind of system would be from current practice in health care.
Currently, employers hire health insurers that have negotiated a set of prices with hospitals and doctors on a mind-bogglingly long list of procedures. But those procedures, each represented by a separate code, don’t map neatly to common descriptions of medical services.
A spine surgery might involve numerous codes, each with its own negotiated price. And one surgeon’s staff might use slightly different codes than those used by another surgeon performing essentially the same surgery. One surgeon might do extra steps during a surgery that another surgeon doesn’t. One patient might require slightly different procedures—which require slightly different codes, with slightly different prices.
Hospitals and doctors have also made little attempt to create packages of medical services. For example, instead of quoting a price for a surgery—so that it includes all the pre-surgery consultations, the surgery itself, the recovery time and the follow-up—hospitals and doctors bill for each service separately.
The piecemeal billing has been blamed widely for driving up health care spending by roughly twice the rate of inflation for decades.
Employers have complained for years of continual cost hikes—although for the most part they have kept investing in health benefits because the benefits are often critical to hiring and retaining employees.
Major Tool CEO Steve Weyreter hoped to end his company’s group health benefits entirely, but after he realized it would complicate his difficulty hiring workers, he turned 180 degrees and hired Activate Healthcare to construct a palatial, 3,000-square-foot clinic at his east-side campus.
Weyreter’s goal now is to control health care spending by providing health care coaching to his 340 workers—only 25 percent of whom had a primary care physician before the clinic opened—and do it more conveniently than existing health care providers can. The hope is for Major Tool to avoid the really expensive hospitalizations and chronic conditions.
“I wanted to get to the point where I could replace my primary care physician. That’s my game plan,” Weyreter said. “If we could get really high-quality health care and the costs are flat or even a little bit down, I’d be happy.”
Obamacare will likely push more employers down the path Major Tool chose. That’s because, in 2018, employers with generous health benefits will face a 40-percent tax on benefits spending that exceeds certain thresholds.
The so-called Cadillac tax has been pushing employers to cut spending on health benefits any way they can.
Switching to high-deductible health plans has been one way to duck the tax. But many employers have also added clinics to try to ensure employees don’t skimp on needed primary care because it’s coming out of their own accounts.
It’s that dual concern—for the cost of care and for worker health—that makes employers uniquely positioned to shake up the health care market, said Spencer Nam, a senior research fellow at the Clayton Christensen Institute in Massachusetts.
“They have a very high vested interest in keeping employees healthy and in their seats on a daily basis,” Nam said. “We think the employer clinic model—whether hospital-owned or independent—does contain all the disruptive elements in it.”
Many benefits brokers and health care executives are focused more on changes that could come from employers’ changing health benefits from a group plan to a situation in which each worker buys his or her own coverage—with a tax credit in the Obamacare exchange or with a preset employer subsidy in a privately run exchange.
Some of those private exchanges might start negotiating prices with providers on behalf of all the individuals—from multiple employers—buying through their exchange.
In a February speech, Bryan Mills, CEO of Community Health Network, predicted private exchanges could transform health care.
“These private exchanges are going to say, ‘We’re going to take my 36,000 employees, and I’m going to start shopping for health care. These 36,000 people are going to need 100,000 office visits and 5,000 surgeries and 100 days in a hospital. … So I’m just going to line up all the people to provide this and say, ‘Give me a price.’” Mills said. He added “That changes health care like that.”
In any case, it seems, employers are moving away from traditional roles of selecting a health insurance plan and then letting the insurer handle negotiations with health care providers. Whatever strategy prevails, it’s likely to produce far different outcomes, said Nam, the Clayton Christensen Institute researcher.
“We think the trajectory is clearly there for the patients that are currently being seen by the existing provider network to look for alternatives,” he said. “It’ll take time for those different things to sort out. But 10 to 15 years from now, we think health care will be delivered in a very different fashion.”•