Employee medical benefit costs at California hospitals rose just 3% on average in each of the past two years, driven by a combination of strategies, including steering care to their own facilities, notes a seminal broker survey of this sector with possible lessons for other industries.
Of the 79 health care organizations representing 226 hospitals across the state, 37% have implemented a comprehensive population health management program. Accompanying efforts include shifting cost to employees, trimming dependent coverage, improving prescription drug benefits and channeling care back to their hospitals.
“We’re seeing a major transition from volume-based reimbursement to a value-based model,” observes Steve Richter, SVP at Keenan HealthCare, California’s largest privately held insurance brokerage and consulting firm. However, he was surprised that more hospitals aren’t using research-based best practices and instead taking more of a tactical approach.
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Keenan conducted the survey, which after 14 years has become important benchmark research for the Golden State’s healthcare industry, with implications for this sector nationwide. Richter describes the survey’s methodology as a differentiator, noting how data is gathered and validated in face-to-face discussions rather than collected online. More than half the state’s major hospitals are represented in the sampling.
Boasting a large market share of clients in the healthcare arena, including hospitals and physician groups, Keenan considers this research a worthy investment to help like-minded clients identify new opportunities to improve value.
What’s unique about hospitals, of course, is that they’re not only purchasers of healthcare, but also providers. “If a hospital can direct a significant amount of business back to their own facility, the costs are significantly lower,” Richter notes. “They’re dealing with marginal costs as opposed to commercial or network rates… They also are in a good position to understand how the physicians are practicing” and, therefore, improve the efficiency of care.
Bruce Benton, a partner of Genesis Financial and Insurance Services and VP of public affairs for the California Association of Health Underwriters, considers this aspect to be a noteworthy contributor to controlling hospital employee healthcare costs.
“It becomes more of a payment issue that doesn’t go through the health plan structure like non-hospital or medical groups have access to,” he explains. Other possible variables, he adds, could include favorable risk based on their employee demographics or wellness programs with meaningful incentives to help raise participation.
Internal efforts
The scope of a hospital’s internal employee cost-containment efforts, along with the sector’s traditional culture, certainly shaped some of the results. For example, 48% of the respondents report offering at least one medical plan at no cost to their workforce and pay 90% of the annual cost of employee-only coverage for their most popular plan. Annual medical benefit cost per covered employee is $13,044.
Hospitals historically have provided robust benefits at a low cost to their employee and dependents, Richter reports. For example, he says only about 2% of California hospitals are actually enrolled in a high deductible health plan or consumer-directed program.
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The top four benefit program objectives identified by survey participants include implementing cost-containment strategies, improving employee health outcomes, complying with the Affordable Care Act and offering a competitive benefit program.
Richter believes other employers can learn a lot from the hospital survey because it involves many of the same issues around network, benefits and cost sharing. “I think it’s critical that if you’re consulting with an employer in another industry that you try to understand that industry and their business needs just as we do with hospitals,” he adds.
However, Benton doesn’t see much out of the ordinary or earth-shattering relative to other industries. “I don’t think that they’re doing much more in the hospital or medical space than you would deploy in any employer group because they talk about wellness initiatives,” he observes. “Their goal is to keep people healthy and keep them engaged, and you notice the small percentage of high deductible health plans.”
