A growing number of self-insured employer groups are pushing to transform how healthcare is priced, steering their employees to high-value providers and negotiating prices as a percentage of Medicare payment rates.
Faced with sharp premium increases—more than double the rate of inflation in 2019, according to the Kaiser Family Foundation—smaller and midsize employers increasingly want to identify lower-cost, high-quality hospitals and physician groups and design their health plans to encourage employees to go to those providers. They aim to narrow the large gap between commercial and Medicare payment rates.
Public and private employers in Colorado, Connecticut, Michigan, Montana, Texas and Wisconsin are adopting that approach. They’re considering or launching group purchasing initiatives with narrow- or tiered-network plans; direct-contracting with providers, such as referring employees to designated centers of excellence for some procedures and conditions under bundled-payment deals with warrantied results; on-site primary-care clinics; and contracts with advanced primary-care providers.
North Carolina tried to tie hospital rates in its public employee plan to a percentage of Medicare rates but had to back off in the face of intense hospital resistance.
“I’m seeing a level of boldness on the part of our members that I haven’t seen before in my 27 years here,” said Cheryl DeMars, CEO of the Alliance, a Wisconsin healthcare purchasing cooperative. “There is a kind of movement afoot.”
Purchasing group leaders say employers are eyeing these more aggressive measures to counter the formidable market power of consolidated hospitals and physician groups. In 2016, 90% of metropolitan areas had highly concentrated hospital markets, while 65% had highly concentrated specialist physician markets, according to the Commonwealth Fund.
These employer moves represent a big change from recent years, when employers held down health benefit spending by shifting costs to employees through higher deductibles and coinsurance. Employer groups say that strategy may have reached its limit as employees can no longer afford the high cost-sharing.
Even with that cost-shifting, business spending on employer-sponsored private health plans rose 7.2% in 2018, up from 5.5% in 2017, according to the CMS’ latest report on national health expenditures.
“Employers are no longer looking to cost-shift to employees who are already strapped,” said Morgan Kendrick, Anthem’s senior vice president for national accounts. “They have a greater appetite for high-quality, more economically advantageous networks.” Self-insured employers across the country provide health insurance to an estimated 110 million Americans.
A major factor accelerating this strategy was a RAND Corp. report on hospital prices released last May. Covering nearly 1,600 hospitals in 25 states, the report found that employer-sponsored health plans paid hospitals an average of 241% of what Medicare would have paid for the same inpatient and outpatient services in 2017. That was up from 236% of Medicare in 2015. Employers took note.
RAND plans to release an expanded version of its hospital price report this spring, covering more hospitals and states and adding prices for physician services. That report will combine the price information relative to Medicare rates with hospital safety grades from the Leapfrog Group, offering payers a one-stop shopping guide for selecting high-value providers.