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By Sara Hansard
Large companies are joining forces to negotiate directly with hospitals and doctors in an effort to control health-care costs that are rising faster than inflation.That is among the trends shaping up among employers for 2018, benefit managers and consultants who work with companies tell Bloomberg BNA. By banding together to negotiate directly with health-care providers to get better prices, companies are bypassing health insurers such as UnitedHealth Group Inc., Anthem Inc., Aetna Inc., and Cigna Corp., the four largest carriers that administer company health plans.
Congress continues to debate and stall on ways to stabilize the Obamacare exchanges, which cover just 7 percent of the U.S. health insurance market. But employers still cover 49 percent of the U.S. population, about 156 million people, and their efforts to control costs are crucial to rein in U.S. health-care spending.
Large employers project the total cost of providing medical and pharmacy benefits to rise by 5 percent for the fifth consecutive year in 2018, which would bring total costs to $14,156 per employee, according to the National Business Group on Health (NBGH), which represents 420 large employers on health policy issues. In contrast, from 2012 through 2016, the U.S. annual inflation rate ranged from 0.1 percent to 2.1 percent, according to the U.S. Bureau of Labor Statistics. Most large employers self-fund their employee health plans, hiring health insurance companies as third-party administrators to pay claims.
A diverse group of 41 large companies that employ more than 6 million workers are beginning a new venture in 2018 that negotiates better rates with medical networks in Dallas/Fort Worth, Chicago, and Phoenix to treat diabetes and back pain and to provide knee and hip replacements. The companies in the two-year-old Health Transformation Alliance (HTA)— which include well-known names such as the IBM Corp., the Coca-Cola Co., Shell Oil Co., and Verizon Communications Inc.—spend about $25 billion a year on health care.
The initiatives include using IBM’s analysis of the companies’ health-care data to identify the most cost-effective hospitals with the best health outcomes for patients. In addition, the HTA has negotiated new contracts for members with pharmacy benefit managers CVS and OptumRx, which provide prescription drugs to employees, that strengthen price negotiations by providing more information about how the drugs are priced, HTA Chief Executive Officer Rob Andrews told Bloomberg BNA.
The PBM contracts alone will save $600 million over the first three years, and all of the initiatives should save more than $1 billion over the first three to four years, Andrews, a former member of the House (D-N.J.), told Bloomberg BNA.
In recent years, employers have held down cost increases by raising employee costs, such as for deductibles, copayments, and coinsurance. But the HTA initiatives were formed to go beyond that, Andrews said.
“Our employers get the fact, by and large, that they’ve already hit the wall on cost sharing, and so the better answer is to find cost reduction” and make health care more affordable for employees, their families, and the employers, Andrews said.
BNSF Railway Co., one of the largest U.S. freight railroads, plans to share some of the savings it expects to achieve from the HTA narrow network pilot program by offering the approximately 3,000 eligible employees in the company’s Fort Worth, Texas, headquarters area upfront payments to their tax-advantaged health savings account, Chief Human Resources Officer Riz Chand told Bloomberg BNA.
Employees will have the choice of using the narrow network, and they may have to change doctors, Chand said. It isn’t clear how many people will choose to use the network, and “they get money whether we save or not,” he said.
The challenge for employers trying to control health-care costs in the U.S. is that “we believe we should be able to go to the doctor we want, when we want and not spend money on it,” Chand said. The company may save as much as 6 percent of costs for its 6,000 nonunion employees by implementing all of the HTA programs, he said.
Health-care spending by both BNSF and its employees will be close to $1 billion in 2017 for the company’s approximately 42,000 employees, most of whom are in separate union plans, Chand said.
Getting better information from pharmacy benefit managers also holds promise, Dexter Shurney, until recently the chief medical director for Columbus, Ind.-based diesel engine manufacturer Cummins Inc., told Bloomberg BNA. Shurney left his job at the 55,000-employee company Aug. 31 to start a consulting firm.
Cummins, which is considering joining the HTA, has negotiated with its PBM, Express Scripts Inc., to get more information about the costs of the drugs it covers, Shurney said. Under many PBM contracts, different discounts are set for generic drugs and for brand-name drugs, but there aren’t clear definitions of which drugs are counted as generics and which are counted as brand-name, he said.
Getting better information on drug pricing is likely to help Cummins control costs, Shurney said.
The Phia Group LLC, a consulting company in Braintree, Mass., that analyzes claims data for about 40,000 employers with more than 8 million employees, sees wide variations in charges by hospitals, Adam Russo, co-founder and chief executive officer, told Bloomberg BNA.
“What I see is insanity,” Russo said. Reimbursement by commercial health insurers can be as much as 10 times higher than Medicare reimbursements for hospitals within the same geographic area, he said.
Phia has been able to keep costs for its 200 employees at an average of $5,800 per employee for 2017, compared with a New England average of about $12,000 employee, Russo said. Like BNSF, Phia provides payments to employees who are willing to use more cost-effective providers, Russo said. The company examines its claims data, he said.
Self-funding health-care costs gives employers the advantage of examining their data, building plan designs that work best for their company, and creating incentives for employees, Russo said.
The NBGH, whose members cover more than 50 million employees and dependents, is “seeing a shift in strategy among large employers to focus more on the supply side of health care,” Brian Marcotte, president and chief executive officer, told Bloomberg BNA.
Depending on the health-care treatment, NBGH members have 21 percent to 48 percent of their contracts in some type of value-based contract in which providers are paid based on meeting cost and quality outcomes, Marcotte said.
In addition, 21 percent of NBGH members plan to implement accountable care organizations (ACOs) in 2018, and twice as many are expected to do so in the following two years, Marcotte said.
But ACOs, which have been used in the Medicare program to try to better coordinate care, aren’t broad-based across the country, Marcotte said. “They vary in terms of maturity and the ability to do something better,” he said.
Some ACOs are focusing their efforts on high-cost patients, but most employees see little difference and won’t want to change doctors to be in an ACO, Marcotte said.
“Employers need to share with employees what they can expect with an ACO,” Marcotte said. “If there’s not much difference, it’s going to be a hard sell.”
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Kaiser Family Foundation data on 2015 health care coverage of the total population is at http://src.bna.com/r72.Information on the National Business Group on Health's health-care cost estimates is at https://www.businessgrouphealth.org/news/nbgh-news/press-releases/press-release-details/?ID=334.
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