Financial Wellness

Five Steps to Healthcare Cost Management Success for Employers

A History of Cost Management

Healthcare reform legislation and spiraling medical costs across the industry have spurred CMS to introduce a number of initiatives designed to improve population health, promote quality, increase access to coverage and reduce waste.

These initiatives include Accountable Care Organizations (ACOs), Medicaid Expansion efforts, bundled payments for care improvement, primary care transformation, and the introduction of the Five-Star program for Medicare Advantage plans.

These efforts have sparked a shift in financial risk assumption, placing greater accountability on health plans and providers, and creating a number of new opportunities for employers, bringing healthcare cost management into a new era.

Employers are facing additional pressure as a result of the Affordable Care Act (ACA). Beginning in 2014, the ACA requires that organizations with 50 or more employees must provide insurance coverage to their employees and dependents under the age of 26 or face a penalty. However, pressure also brings opportunity.

The shifting of healthcare risk, payment transformation and the industry-wide focus on quality improvement will enable self-funded employers to be much more innovative with benefit design and contracting.

To take full advantage of the changing tides and take better control of rising healthcare budgets, organizations today are implementing new strategies and sparking creative trends in employer-sponsored healthcare coverage.

These strategies include: identifying the causes of healthcare spending and defining actionable pathways to improve outcomes, developing collaborative and shared solutions with medical carriers and physicians, and engaging the workforce in order to drive improved health behaviors. Additionally, employers are taking a much closer look at fraud waste and abuse in order to work to eliminate this industry wide issue.

Assess Your Current Standings: Pinpoint the Causes of Healthcare Spending

Excessive use of emergency room services, benefit design that limits access to proper chronic care management and costly specialty pharmacy utilization are just a few factors driving healthcare costs today. It's a simple fact: You can't change what you don't acknowledge. Understanding the root causes driving up your organization's healthcare costs is the first step to realigning benefit design with the needs of your workforce.

Analyzing historical data can provide a wealth of knowledge and enable employers to learn more about the health of their population, the key drivers of care utilization, as well as the networks and procedures driving up those costs.

For example, a sudden rise in per-employee-per-month costs can be caused by various factors: an increase in provider pricing, excessive utilization of specific high-cost procedures, a spike in chronic disease diagnoses among employees, or an increase in the use of high-cost, out-of-network facilities. Understanding the key drivers of your organization's specific trends can support the next step in the process: mapping out a strategic path toward improving those outcomes.

Plan for the Near and Long-Term Future: Identify Actionable Pathways

To achieve any real impact on the root causes of healthcare spend, employers must define actionable steps that will drive the greatest change in both short-term and long-term results. For example, an identified spike in a specific cancer diagnosis across the population may require immediate changes in case management services to strengthen the specialized clinical support those employees need to get better.

An increasing trend in obesity or back pain may require new wellness and disease management programs to help lower those costs in the long term and to minimize the impact of absenteeism on productivity.

Similarly, an identified spike in expensive procedures or overutilization of high-cost facilities may require a candid conversation with carriers, brokers and other vendors. Employers that gain access to historical data can analyze network and out-of-network provider utilization to identify issues and patterns that drive cost.

These can include gaps in access, gaps in efficiency, and gaps in strategic network relationships. Which procedures and facilities do employees use most? Is utilization aligned with the networks providing the best discounts? Is lack of access in rural areas driving poor health outcomes?

Employers who can answer these questions can create actionable pathways for change by aligning all stakeholders around common and achievable goals.

Develop Mutually Beneficial Partnerships with Vendors

Collaboration between employers, carriers, consultants, networks, care management companies and even employees is critical to a successful healthcare strategy in 2014 and beyond. Employers armed with an understanding of key cost drivers can use this insight to develop collaborative action plans that engage all stakeholders toward common goals.

Payment incentives can be realigned to reward value and measurable performance improvement.

A multitude of collaboration opportunities are beginning to take shape. Innovative employers are analyzing healthcare data to identify those initiatives that work best for their specific needs, including:

Realigning financial incentives

  • Use reference-based pricing concepts to contract with key providers.
  • Consider higher payments for primary care physicians that demonstrate cost reduction and improved care coordination.
  • Develop centers of excellence or targeted bundled payment contracts for specific high-use procedures to drive greater traffic to high-performing providers while taking advantage of improved discount rates. Reward care management vendors based on demonstrated clinical outcomes and set clear and measurable expectations for improvement; evaluate results regularly to keep programs on track.
  • Provide access to private health insurance marketplaces developed by brokers and consultants in order to give employees greater options, increase awareness and share in group pricing benefits.

Optimizing Benefit Design and Programs

  • Invest in high-touch models for primary care such as Patient Centered Medical Homes or Accountable Care Organizations.
  • Adjust plan design incentives to drive employees to cost-effective physicians, thus creating higher volume for high-performing providers and lowering spend for employers.
  • Reduce and minimize copayments for care related to prevalent and costly chronic conditions to eliminate barriers to effective care coordination.
  • Pair high-deductible health plans with web-based tools to provide easy access to pricing and other relevant information in order to encourage shopping.
  • Identify worksite locations that would benefit from onsite clinics and provide convenient access to clinical services at no charge or for a limited fee.

Access to healthcare data has opened the floodgates, making it possible for employers to implement healthcare cost management solutions that were once only available to carriers. The shift of risk across the continuum of care has further expanded opportunities for employers, creating opportunities for successful alignment of incentives across all parties involved in the healthcare process.

Treat Employees as Accountable Stakeholders: Engagement Strategies that Change Risky Behaviors

Employee engagement is not a new concept. Employers have struggled for years to control healthcare costs associated with risky lifestyles behaviors and chronic diseases. Collaboration across vendors can support smarter benefit design, but the impact will be limited if employees are not engaged in the process as well.

Today, innovative employers are implementing a combination of new solutions to inform the workforce, promote greater transparency and deeper understanding of healthcare services, and ultimately, drive urgency to improve health behaviors.

To be effective, employee engagement must be comprehensive by targeting and delivering a variety of information in a multitude of ways, including:

  • Transparency into costs: In today's healthcare world, employees do not receive information on the total cost of their healthcare. Access to comparative costs between providers and increased accountability for spending will go a long way to promote consumerism and empower the workforce to make more cost-conscious choices about their healthcare needs.
  • Health guidance: Employees need personalized information and benefit plans that address their specific needs and lifestyles. Healthcare data can provide access to population-level details such as condition prevalence, gaps in care, HRA data and other clinical risk factors impacting the workforce.

    This insight can support more targeted benefit design and help to craft personalized employee healthcare communication. For example, employers that identify a high prevalence of back pain in the workforce can target those healthcare needs by providing specialized guidance via emails, newsletters, mailers, flyers, onsite safety programs, and more.
  • Incentives: Rewarding employees for participation in key programs or for achieving critical health goals can support an effective engagement strategy. To be successful, however, incentives must be targeted and should be accompanied with clear and concise healthcare guidance that addresses the personal benefits of achieving these goals.

    Additionally, objectives and associated incentives must be defined and relevant to the employee, such as financial rewards for weight loss, reduction in blood glucose levels, or participation in wellness programs.

Implementing a combination of these efforts is best, and targeting the specific needs of your employees is a must.

A Word on Fraud, Waste and Abuse Prevention

In fiscal year 2012, the government's healthcare fraud prevention and enforcement efforts recovered $4.2 billion, topping the previous $4.1 billion in 2011. Healthcare fraud has become one of the most profitable crimes in the United States, affecting government entities, commercial health plans and self-funded employers.

The latter, however, have had little defense in the past in combating this disconcerting trend. Today, a growing number of employers are adopting new hands-on strategies focused on identifying the fraudulent schemes targeting their healthcare budgets.

Gaining access to healthcare data and incorporating industry expertise can support these efforts. For example, employers can partner with brokers and administrative services vendors to implement overpayment audits focused on identifying false claims or bill-splitting and up-coding schemes.

Other resources, such as anti-fraud alliances, are also emerging to spur collaboration across the industry in order to target broader schemes across a multitude of payers.

Additionally, these strategies can enable the identification of medical waste caused by unintentional billing mistakes, such as duplicate claims, improper coding or accidental unbundling of services.

Lastly, uncoordinated care delivery, unwarranted utilization, preventable admissions and other inefficiencies are causing billions of dollars in medical waste each year. Analyzing healthcare data can enable employers to proactively identify underperforming doctors and those driving up costs associated with medical waste. This insight can inform network contracting and support the implementation of bundled payments and other performance-based initiatives.

The time is right for employers to be much more involved in the fight against fraud, waste and abuse and success can only lead to reduced healthcare spending and improved business profitability.


The Affordable Care Act has brought an onslaught of changes to the nation's healthcare system for all parties. From providers to insurers to employers and employees, a shift in focus has occurred that now places a stronger emphasis on overall quality of care and patient outcomes. Employers in particular have the opportunity to implement new and innovative changes that align accountability across all stakeholders towards a unified goal and create a culture of health for employees.

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