The take-home from this year's survey from Modern Healthcare: Growth in health costs fuels growth in health costs.
From the purchaser's perspective
Providers, in their experience as employers, might offer critical solutions
The burden of employee health costs impacts the operational expenses of hospitals, which in turn fuels overall health cost increases. There's evidence that hospitals and systems, chief among this year's survey participants, are feeling the pinch of health cost increases, which averaged 11% last year, according to a recent report by the Kaiser Family Foundation and the Health Research & Educational Trust. The Modern Healthcare survey shows some health systems moving toward high-deductible health plans that require employees to pay out of pocket for significant amounts of their healthcare needs.
This is consistent with private industry. Anecdotally, I hear from employers who are not only shifting more costs onto employees, but are actively reviewing options to exit the health insurance market altogether, in some cases to send employees to the emerging state healthcare exchanges being formed by the Patient Protection and Affordable Care Act.
The Kaiser/HRET study confirms these observations: The percentage of employees enrolled in plans with a deductible of more than $1,000 tripled in the past five years in large firms, and reached 50% in small firms. The same study shows the exodus from the health insurance market, with erosion in health coverage among employees of small and large firms.
Health systems would do well to view their own industry from the perspective of employers and purchasers of health benefits. Given their dual knowledge as both providers and purchasers, they may have some important innovations to contribute to very significant challenges ahead for our health system and our economy. First, they need to be willing to raise some tough questions other purchasers ask on behalf of employees.
- Why are costs rising faster than quality and safety are improving?
Employer and employee health costs are up 168% and 160%, respectively, compared with 1999, far ahead of inflation at 38% and salary growth of 50% during the same period. We cannot think of another industry with such steep cost increases. In the chance that one existed, it is likely that the industry could explain its growth related to a significant change in the market or the quality of the product. However, recent data on health quality and safety show neither apply to healthcare.
We've seen some modest and select improvements in performance in the past decade, but little to no improvements in an alarmingly poor safety record. For instance, the 2010 chart review of Medicare beneficiaries by HHS' Office of the Inspector General found that 180,000 beneficiaries died during a hospital stay, and one in six Medicare admissions resulted in an adverse event.
Most purchasers would never accept this kind of cost increase from other vendors, especially when not accompanied by improved value. An office supply vendor does not negotiate a contract with a hospital by saying, “Your costs for our contract are going up 11% this year in order to reimburse me for the high expense I have running my business.” The vendor instead proves that it provides the highest quality supplies at a competitive price, and if costs go up steeply it shows a commitment to improvement in value. Yet every year purchasers accept health cost increases with little if any proof of improved performance.
- Why aren't my employees able to select the best quality providers for the right price, the way they can for any other product or service?
Despite the pioneering work of the Leapfrog Group and other efforts to improve transparency in healthcare, employees have very little information to make critical decisions about their healthcare. As a result, they don't always select providers that give them the best care—even when they pay premium prices.
Leapfrog reports on measures of hospital performance most important to consumers, such as infection rates and mortality rates, but many hospitals still refuse to report to the free and voluntary Leapfrog survey run by purchasers. Most other publicly available data show most hospitals as essentially average on performance standards, and too often the information focuses on measures consumers don't care about. Also, there is almost no information available to consumers about the performance of individual physicians.
Other industries do not have the luxury of hiding their performance from the public. Every newsstand contains a plethora of independent reviews comparing cars on features that matter most to consumers, such as fuel economy and reliability. In the past decade, a new, even bolder frontier in transparency has emerged. With the explosion of the Internet, smartphones and online shopping, consumers now expect to see reviews and feedback before they make a purchase decision, and they expect the retailer to provide that data in real time. There's a new norm in transparency: Reveal the good, the bad, and the ugly, even if you lose the sale.
Healthcare enjoys exemption from many of the competitive rules that govern every other industry in America, but that exemption cannot last. Costs cannot continue to escalate as significantly as they have in the past, because employers will shift risk or exit the market. The anemic improvements in safety and quality are increasingly being made public with advances in measurement science, and the aging baby boomers will demand this information as they require more services from healthcare providers. Transparency is not optional for competitive businesses in other industries, and ultimately, it will not be optional for healthcare either.
Health systems that look through their lens as employers may find innovative solutions to the toughest challenges in healthcare. They may know ways to use transparency strategically, to foster quality improvements that focus on value, to prove value and worth, and to work in partnership with purchaser colleagues to achieve a sustainable future for our healthcare system.
Leah Binder is CEO of the Leapfrog Group, Washington.
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