CEO's Guide to Restoring the American Dream
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The Health Rosetta
I believe the Health Rosetta is the way forward. The Health Rosetta is an ever-evolving collection of principles and best practices that I and many like-minded professional colleagues have put together that’s a blueprint for sustainably reducing costs and improving care. It’s built on real-life successes, not theory. It simplifies the path for you to achieve similar results.
In the old model of health care, the supply side dictated the pricing and terms. Today, forward-looking organizations refuse to leave these areas unmanaged. The wisest are turning health care costs, which many view as a liability, into a source of competitive advantage. They have found they can reduce spending by 20 percent or more per capita while providing better benefits than 99 percent of the workforce. In other words, the best way to slash health care costs is to improve the quality of those benefits. The Health Rosetta makes it easier to follow these leaders.
The nonprofit Health Rosetta Institute’s mission is to accelerate adoption of the Health Rosetta. It focuses on practical, nonpartisan fixes to how we pay for care, what we buy, and how we manage benefits. It helps public and private employers and unions reduce health benefits costs while providing better care for the 150 million Americans who receive health benefits through their jobs.
The focus of this book is on nongovernment paid health care. However, the Health Rosetta isn’t employer-specific or even U.S. specific, for that matter. As I’ve spoken with people around the U.S. and world, it’s clear that no country is without problems in how it purchases health care. Perhaps the biggest missed opportunity at the state and federal level is that the public sector is a large employer itself, representing a broad cross-section of society. The fact is public sector employers have all the same opportunities as private sector employers to greatly improve the value they receive.
Broadly speaking, the two biggest problems in the U.S. health care system are pricing failure (no correlation between price and health outcomes) and overtreatment. These problems are pervasive in both publicly and privately funded health care benefits. Policy makers would be wise to test and prove their models of reform with the public sector workforce. Fortunately, there are widespread examples of success they can follow. The Health Rosetta aggregates these into an understandable blueprint.
Here are a few of the Health Rosetta’s foundational components.
•Value-based primary care. Properly conceptualized and incentivized primary care is the front line of defense against downstream costs.
•Concierge services. Navigating health care is complex, even for those of us in the industry. Employees need access to trusted, aligned resources.
•Active ERISA plan management. Employers deeply manage budgets in every other area of spend. Why not health benefits? Internal fiduciary oversight is critical.
•Transparent medical markets. Cost and quality are often inversely correlated in health care. Focusing on better quality and outcomes is the path to lower costs. This is particularly true for addressing high-cost outlier claims that make up the majority of spending.
•Payment integrity. Ensuring claims are paid correctly and tackling fraud is a critical step to high-performance benefits.
•Transparent pharmacy benefits. Purchasers need true transparency of data to control decision-making.
So, if the fixes already exist, why isn’t everyone using them?
Health care’s redemption is a classic example of solutions hidden in plain sight. Remember the The Big Short and Moneyball? As noted business consultant Ric Merrifield, author of Rethink: A Business Manifesto for Cutting Costs and Boosting Innovation, has pointed out, the films’ shared theme is that in the face of a mountain of evidence, no one paid attention. Wall Street and federal regulators didn’t downgrade the credit ratings of mortgage-backed securities, and no one paid attention to on-base percentage, even when the issues were right in front of them. The same goes for health care.
I think of health care as being in a similar place and following a similar path as the banking industry in the early and mid-2000s that partially led to the 2008 financial crisis. My hope is that this book will contribute to a health care turnaround more profound and longer lasting than that in banking.
A Note on Reading the CEO’s Guide
The first two sections of this book, The Current Situation and How and Why Employers Are Getting Fleeced, explore in detail the case presented in this introduction, helping you understand specifically what has gone wrong with health care and what the consequences are to your employees, your organizations, our communities, and our country.
The last two sections, Doing It Right and Health Rosetta, will step you through key solutions you can start implementing immediately.
Throughout, you will find case studies of employers that have already achieved significant success implementing Health Rosetta components. The goal of these is to show how creative application of select strategies can be highly successful. Just copying them whole cloth is unlikely to work. You have to build a model that works for your geography, employees, claims experience, cost structure, and other variables.
Before we dive in, I want to cover a couple of issues to help you navigate the book. First, feel free to jump around. Each chapter generally stands on its own.
Second, I’ve tried to simplify the enormous complexity of our health care system. This means I’ll skim or skip certain topics to avoid rabbit holes.
Third, health care always seems to use ten different words for essentially the same thing, each with some supposed slight variation in meaning that isn’t even consistently used by those of us in the industry. To minimize confusion, I generally use consistent terminology in key topics.
•People. I use a couple different terms depending on context. Individual is the default. Patient is for people receiving care. Member or employee refer to individuals from a health plan’s or employer’s perspective.
•Provider organization and clinician. These terms cover the people and entities that provide health care services. This includes doctors, nurses, hospitals, health systems, and anyone else that provides health care services.
•Insurance company or carrier. These cover the organizations that provide insurance and/or self-insured plan administration services
•Health plan. This covers a specific health benefits plan, whether fully-insured or self-insured.
•Plan administrator. This is the organization that performs noninsurance pieces of a health plan, like claims adjudication. It includes Administrative Services Organizations (ASO) tied to insurance companies and Independent Third Party Administrators (TPA). I use these more specific terms when distinguishing between the two.
•Benefits broker, consultant, and advisor. Broker describes those operating under the status quo, highly-conflicted approach to purchasing health benefits. Advisor or consultant are used to describe those operating under the modern, high-value, transparent approach. These three terms are often used interchangeably in the real world, so typically aren’t sufficient to identify high-value people and firms.
•Workplace wellness program. The term wellness has been co-opted by a large industry of vendors that largely sell no or negative ROI products. I’m a fan of the concept of wellness, i.e., well-being, just not these types of programs. I use this more specific term to refer to these programs.
Fourth, a couple chapters were primarily written by other experts I admire. Their names appear at the beginning of these chapters to easily identify them.
Finally, I’ve attempted to ensure every critical point, especially the more controversial ones, is well-cited. However, some sources are private conversations with other industry insiders who are uncomfortable being publicly cited. As a result, some citations for some points refer to private conversations and a few aren’t cited.
To learn more, read on or visit healthrosetta.org
For ongoing insight, best practices, and updates, join the Health Rosetta newsletter at healthrosetta.org/employers.
Part I
The Current Situation
As many of us have experienced in our professional lives, great opportunities often come from adversity, problems, and setbacks. While it’s hardly breaking news that there are problems in health care, the extent of the collateral damage that is a direct byproduct of these problems is less well known. This part of the book goes beyond the visible parts of our present situation to explore the underlying dynamics and incentives behind many of these problems and the extent of collateral damage.
Most people have a fundamental misunderstanding of the pressures that drive the health care industry. Those pressures have a profoundly negative financial and health impact on your organization and employees. However, there is good news in our current situation. Despite what you’ve heard, unit prices are flat in most of health care. Plus, millennials are now the largest chunk of the workforce and are changing their world in ways that hold great promise for health care.
Chapter 1
America has gone to war for Far less
One definition of an economic depression is two or more years of income decline. Since the middle class has seen wages decline over the last 20 years after adjusting for inflation (see Figure 2), they have been experiencing a depression for nearly twenty years. Here’s why.
Employers spend more on payroll than ever, yet virtually the entire increase has gone to health care costs, as Rand concluded in their report, How Does Growth in Health Care Costs Affect the American Family?13 In many cases those costs have literally taken all of the payroll increases for middle class employees. In Mobile, Alabama last year, the Public Education Employees Health Insurance Plan board voted to raise health care insurance premiums for families, from $177/month to $307/month. This promptly ate up the state-approved 4 percent pay raise for employees that make less than $75,000 a year.14
Both employees and employers (public and private) bear the burden of these huge premium increases.
Accurate Box Co. CEO Lisa Hirsh said that 25 years ago health care benefits were 5 percent of an employee’s total compensation at her company. Today, that cost can be 30, 40, or even 50 percent of total compensation. “When family health care costs are $30,000 a year and the person is making $30,000, their total package could be $60,000, but they’re not seeing it.”15
A Sneak Attack
Imagine if a foreign country were causing this kind of collateral damage on our economy. We’d go to war in a second. Yet, we haven’t. Evidence of the industry’s “sneak attack” on the U.S. is clear. To wit…
Household income has been devastated by health care costs.
According to an article in the Annals of Family Medicine, from 2000 to 2009 the average annual increase in insurance premiums was 8 percent. During the same time frame, household incomes rose an average of 2.1 percent. If health insurance premiums and national wages continue to grow at these rates, the average cost of a family health insurance premium will equal 50 percent of all household income by 2021—and exceed 100 percent of household income by 2033.17 This is at least partly to blame for the fact that nearly seven in 10 Americans have less than $1,000 in savings.18
Illness or medical bills contributed to 62 percent of all bankruptcies in 2007.
This is up from 46 percent in 2001.19 In 2013, more than 1.5 million Americans lived in households that experienced a health-related bankruptcy. More than three-quarters of those people had insurance.20 Some say medical bills may also be the top cause of homelessness. Nearly half of all GoFundMe crowdfunding campaigns are to pay for medical related expenses.21
State-level data demonstrate that health care is choking other budgets such as education.
Massachusetts is a cautionary tale. Its move to almost universal health care insurance in 2006 became the model for reform nationwide, the Affordable Care Act. While the state did see coverage increases, Figure 3 shows this came at a 37 percent increase in health care costs. As a result, funding in education decreased by 12.2 percent, mental health by 22.2 percent, and local aid by 50.5 percent. Frequently in education, what used to be paid for by taxes has been cut entirely and parents or teachers have to raise money to ensure their children get core school programs. In other words, we’re stealing our kids’ future.
Massachusetts was also forced to cut infrastructure spending, which dropped 14 percent. And Massachusetts is hardly alone. At both the state and federal level, trains are literally going off the tracks and bridges are falling into rivers as health care costs have starved budgets of infrastructure investment.
Between 2004 and 2014, officials in the little town of China, Maine, saw health insurance costs go up 141 percent to $200,000 per year for 11 municipal employees; the cost for just one of those employees with dependents equals the town’s entire parks and recreation budget or the operating budget for one of its three volunteer fire departments. Instead of repaving roads, China is patching budgets. Beyond these microcosms, there are hundreds of millions of dollars in unfunded pension commitments around the country.23
More than 210,000 people die each year from preventable medical error in hospitals and other health care settings.24
It’s the fifth leading cause of death in the U.S. after respiratory disease, accidents, stroke, and Alzheimer’s.25 Note that this is more than the number of soldiers killed in WWII.26
These deaths are primarily due to infections, along with errors in prescribing and administering drugs, mistaken diagnoses, botched surgeries and procedures, falls, and communication lapses from one care provider to another. The number of preventable adverse events associated with hospital care every day is 10,000—the medical equivalent of “friendly fire” happening seven times per minute. As with most cases of friendly fire, it’s leadership and design that are most often at fault, rather than individuals. For detailed information on this subject, check out Sarah Kliff’s powerful exposé on the flawed medical culture, “Do No Harm,”27 and Dr. Marty Makary’s book, Unaccountable,28 which brings these statistics to life in devastating detail.
Hyperinflating health care costs have significantly reduced retirement savings.
I did some very rough, back-of-envelope calculations on what could be put into people’s retirement plans if not for hyperinflating health care costs. I used historical rates of inflation, S&P growth, and health care premiums. Over 30 years, the average American household would have around $1,000,000 in their retirement account (assuming growth in an S&P index fund).29 As things stand, the majority of Americans have next to no retirement savings and 68 percent of millennials aren’t participating in a job-related retirement plan.30
There are unprecedented levels of dissatisfaction and burnout by doctors.
According to a Doctors Company survey of 5,000 physicians, 9 out of 10 physician respondents indicated an unwillingness to recommend health care as a profession.31 A major reason is the layering of more and more bureaucracy. A recent study found that for every hour physicians see patients, they spend nearly two additional hours on recordkeeping.32 Another reason is they’re forced to see too many patients too fast, robbing them and patients of the ability to effectively diagnose or of any sense of connection or satisfaction.33 Sadly, doctors have the highest rate of suicide of any profession.34
The High Cost of Poor Care
Dying is a good example of how we overspend on care we shouldn’t be receiving in the first place. As renowned physician, policy analyst, and author Atul Gawande covered in his book Being Mortal: Medicine and What Matters in the End, the U.S. does a horrendous job dealing with end-of-life issues. This often leads, as Ken Murray, MD put it, to “misery we would not inflict on a terrorist” for our loved ones.35 It also squanders billions of dollars. Approximately 30 percent of all Medicare spending is in the last six months of life, most of it unnecessary and much of it harmful.
Knowing the limits of medicine and what impacts quality of life, many doctors die differently than the rest of us, said Murray, meaning they die with much less intervention (and
cost). People in La Crosse, Wisconsin, happily for them, are not like the rest of us: 96 percent of residents have advance directives saying how they wish to be treated at the end of life—and those wishes are respected. Now look at the cost differential: $18,000 for care in the last two years of life in La Crosse vs. a national average of $26,000. At one hospital in New York City, it’s more than $75,000.36
Musculoskeletal (MSK) procedures, primarily surgeries such as knee replacements and spinal fusions, are another example of our overspending on care we don’t want or need. The Atlantic reported in “When Evidence Says No, but Doctors Say Yes” how pervasive overtreatment is in areas such as stents and musculoskeletal procedures.37 In fact, benefits expert Brian Klepper, formerly CEO of the National Alliance of Health Care Purchaser Coalitions, estimates that 2 percent of the entire U.S. economy (not just health care) is wasted on non-evidence-based MSK procedures that add no value. How can that be? Health care spending is nearly 20 percent of the national economy, MSK procedures are typically 20 percent of healthcare spending, and only 50 percent of MSK procedures are evidence-based.38
Health care is a $3 trillion dollar industry and 30 cents of every one of those dollars spent on health care is wasted, according to the Institute of Medicine. In 2009, that was $750 billion. Imagine what we could do with that money.39
•Send every 17- and 18-year-old to a state university for four years
•Fund the Department of Defense for a year
•Cover all hospital and medical care for veterans for 51 years