Taming Out-Of-Control Healthcare Costs

In 2008, America’s financial institutions were deemed Too Big To Fail. In 2023, does healthcare have the opposite problem: Too Big To Succeed? Can a delivery system dominated by a small group of for-profit players deliver reform and customer value?

Many employers would say no, and Elizabeth Mitchell is a leader among them. As president and CEO of the Purchaser Business Group on Health, Mitchell helms a nonprofit coalition of nearly 40 private employers including those who self-insure to provide employee health benefits.

“United Healthcare, the big three PBMs—they are so large and so well resourced and so profitable that they have very little incentive to change course. And in many cases, they are larger than even my largest member.”

In an exclusive interview with HealthLeaders, Mitchell dispels multiple myths:

  • That mergers and acquisitions improve care
  • That payers listen to large employers
  • That employers want health plans to coordinate care
  • That employers will continue to accept the status quo without a fight

To this myth-busting, Mitchell adds PBGH’s mission: “Our focus hasn’t changed. It’s quality, experience, affordability, and equity.”

M&A is DOA

“We are seeing a growing access crisis, particularly for primary care and maternity care. I believe mergers and acquisitions are playing into that,” says Mitchell.

“All of the evidence shows that M&A has had no positive impact on quality but a clear impact on prices because the larger entity then has more leverage in negotiations, which is typically the point. Mergers and acquisitions are not generating the results that our employers would like to see in the market.”

Being a larger entity doesn’t benefit everyone, including what Mitchell calls jumbo employers.

“There is this myth that these entities [payers, PBMs] are responsive to jumbo employers when in practice, they’re just not. Employers are clear about what they would like to buy, and the suppliers just don’t care,” she says.

Cutting Out the Middleman

Suppliers may not care but employers do.

“It’s increasingly challenging to shape the healthcare system in the way that purchasers want.”

And what do they want?

“What we are seeing among my members is a growing trend to want to go direct, to not go through these entrenched middlemen, and to find other ways to buy the healthcare that they want to buy for their employees.”

Mitchell is referring in part to direct contracting, where employers contract with providers and accountable care organizations to deliver employee healthcare versus contracting with health plans or third-party administrators (TPA).

But how prevalent—and successful—are these approaches?

Direct Contracting Works But Must Be Scaled

In a 2020 Willis Towers Watson Health Care Delivery Survey, 73% of employers reported an intent to direct contract. That number grew to 90% in the 2022 survey.

Mitchell reports that “about 20%” of PBGH members direct contract, have done so for years, and with notable success.

“They all have data that shows that when they go direct, they are saving 10-20% of total cost—and in many cases, getting the quality and experience and access results that they’re looking for.”

The challenge is replicating those results more broadly.

“Going direct at scale is very challenging for jumbo employers with headcount all over the country. They tend to direct contract in regions where they have concentrated headcount [e.g., an ACO contract where they’re headquartered]. But they may not have the volume to make it work in other regions where they have employees.”

Mitchell adds: “It’s just not feasible to negotiate hundreds of contracts with different providers, especially when you’re a small benefits team that isn’t resourced to do that. Taking that strategy to scale is what we’re working on now.”

Providers, Plans and TPAs

Scaling direct contracts requires strong provider partnerships. Self-insured companies want that.

“Employers are able to have a different type of relationship with their provider partners. And they both understand what the other is looking for,” says Mitchell.

While employers may be telling providers “We heart you,” the message to TPAs and health plans is very different message: “Stay in your lane.”

“Our members don’t want health plans to be doing any form of medical care. They want those resources to be with the providers, particularly primary care and maternal health,” says Mitchell. “Let them do the care coordination and the social needs screening and all of the things that patients frankly want from their doctors, not from their health plan.”

And what about health plans?

“They need to get the basics right: customer service, claims processing.”

She has similar advice for TPAs, who may start out offering administrative services but often expand until they look like the very health plans that self-insured employers sought to avoid. And the more they resemble a health plan, the more likely they are to be acquired by one—another example of M&A’s negative impact on healthcare.

“There is a significant gap in the market to enable the types of programs that jumbo employers want. When I say gap, I want to be clear that there are plenty of TPAs out there and even some that are still independent. What our members are looking for is a TPA that is not just fee-for-service based, but one that can pay prospective or alternative payment models. That is a very small subset.”

May You Live in Interesting (Fiduciary) Times

If all of that wasn’t intriguing enough, enter the Consolidated Appropriations Act (CAA) and new hospital pricing transparency regulations.

Employee benefits consultancy Bolton notes: “With the CAA now mandating access to the prices of health care services, employers have greater accessibility to carrier transparency. Additionally, CAA requires plan sponsors to demonstrate that their purchased health care services are cost effective, high quality, and meet mental health parity and pharmacy benefit requirements for their members.”

Expect employers to use the data that TPAs, health plans, and PBMs have historically withheld.

“I would just underscore the fact that the CAA actually obligates jumbo employers to audit their vendors and partners, to test that there are no conflicts,” says Mitchell. “That is going to require access that employers have not always had, like data that PBMs are loath to provide.”

“Employers are obliged to ensure that they are paying a fair price, that they’re getting the best quality. That is not necessarily something they can achieve with the current vendors and partners they have.”

“I believe all of this is going to force some very different dynamics and make it a very interesting time,” says Mitchell.

Or as her LinkedIn profile banner reads: “It’s long past time we take action to foster meaningful, widespread change in health care to the benefit of those the system should be serving — American businesses and the workers.”

(Article Courtesy HealthLeaders – Contributing writer Laura Beerman)