Keep It Simple: Too Many Players, Not Enough Caring

When one thinks about the healthcare industrial complex and the amount of money being generated by for-profit organizations administering the provision of care, the result can be mind boggling. Without even including the professionals who place their hands on the patient, the number of firms that carve out a piece of the administrative pie is impressive and amazingly profitable.

United Healthcare, the mega insurance carrier, saw profits increase by 28% to $5.3 billion . . . for the third quarter of 2023!  During the same period, Cigna realized $2.8 billion in profits, Elevance Health had profits of $1.6 billion and Humana saw profitability increase to $1.2 billion.  As to be expected with this level of profitability, shareholder value increased exponentially.

Pharmacy Benefit Managers like Express Scripps (owned by Cigna), Optum Rx (a subsidiary of United Healthcare) and Caremark (owned by the retail giant CVS) generated $315 billion annually from fees that include rebate sharing, pharmacy spread, PBM-owned pharmacies, administrative fees, and Direct and Indirect Remuneration (DIR) fees.  An impressive financial result for a litany of firms that produce nothing and are unknown to the retail consumer.

Meanwhile, health systems, the actual providers of care, face significant financial headwinds.  In the second half of 2023, Ascension Health, the manager of 142 hospitals across the US saw a net loss of $238 million.  Renton, Washington based Providence Health had a net loss of $595 million and Lavonia, Michigan based Trinity Health had losses of $1.4 billion.  The most successful of not-for-profit health systems operate on a profit margin of two to six percent of total revenue.

Is the value derived by the “middlemen” worth the expense?  Employers, the largest purchasers of healthcare services think not.

According to the Purchasers Business Group on Health, a consortium of large employers that includes Walmart, Chevron, Microsoft, Costco and Boeing, employers want to cut out the middlemen and go direct by contracting with local providers and ACOs to deliver healthcare.  A recent survey by Willis Towers Watson found that 90% of self-funded employers intend to direct contract with local providers in 2022, up from 73% in 2020.

Employers do not want health plans to provide any form of medical care or management.  Rather, they prefer the resources of community-based providers to deliver and manage care, particularly in primary and maternal care.  Employers have listened carefully to their employees who have become quite vocal and want their doctors aligned with the local health system and not their insurance carrier.

The change that is being driven in healthcare is fueled by growing employer frustration with rising costs, lackluster carrier-originated care, and the rampant inefficiencies in today’s healthcare delivery system.  Employers are seeking partnerships that deliver high quality care at an affordable price at the local level.  This change opens the door for health system leadership to understand and respond with a meaningful employer-centric service line that aligns the population health interests of the employer with the capabilities of the provider.  A successful response will result in increased commercial market share, enhanced bottom line performance, and best position the health system in this new era of direct contracting and reimbursement.