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Economic Investment and the Journey to Health Care Value — Part III: Health Care Purchasers

Article · December 5, 2017

The Health Care Transformation Task Force (HCTTF), formed in 2015, is a consortium of organizations representing patients, payers, providers, and purchasers working toward establishing value-based payment as an industry standard. Its members, which represent, insure, and/or provide treatment for more than 200 million people, or more than 60% of the U.S. population, are committed to having 75% of their business operating under value-based reimbursement arrangements by 2020. This series of three articles examines this transition from the points of view of providers, payers, and purchasers.


For nearly 70 years, U.S. employees have received health insurance through their employers. Today 160 million Americans — more than half the population — depend on employer-sponsored health care. As health care costs continue to climb, political winds threaten to further undermine the stability of health insurance markets. Though most of the public conversation surrounding the Affordable Care Act has focused on the individual market, its impact on group insurance is in many ways much more significant. With the ACA still in place, employers and payers risk being subject to its 40% “Cadillac” tax, scheduled to begin in 2020, on any plan whose premium exceeds a certain threshold. Employers are increasingly turning to innovative value-based approaches to help restrain cost increases and therefore keep premiums down for their group offerings, while maintaining employee satisfaction and health in a competitive labor market.

Value-based efforts such as centers of excellence, bundled payments, and high-performance networks can reduce the total cost and improve the quality of health care, rather than simply shifting costs from employers to employees. As these value-based purchasing programs move beyond early adopters and into the mainstream, their scalability and replicability will be tested. Early successes, however, suggest that such programs may not only transform employer-based health care, but that they may also have a powerful and lasting impact on the economic success and competitiveness of U.S. businesses. Continued focus on value will be critically important to ensure that the health care sector evolves toward sustainable, affordable, and patient-centric care.

Innovative Approaches to Value-Based Purchasing

Employers are approaching value in creative and collaborative ways to pursue population health management and care delivery. In a 2016 employer survey by benefits consulting firm Willis Towers Watson, 34% of respondents said effectively managing population health risks was an extremely important priority for their organization. Some employer-based approaches include:

  • Centers of excellence (COEs). These typically consist of teams of skilled experts who engage in research, leadership, and best practice development to advance medicine and care delivery. Large employers such as GE, Wal-Mart, and Lowe’s have partnered with hospitals to design COE programs and offer services to employees, and reputable academic medical centers are actively seeking these types of direct relationships with employers. In the Willis Towers Watson survey, 45% of respondents indicated that they currently offer access to COEs for specialty services via contracting with a health plan, health care provider, or other vendor, while 32% plan to provide access by 2018. Although just 17% of employers incorporated reduced employee cost-sharing for COEs into their benefit designs in 2016, that number could more than triple to 54% by 2018.
  • Employer coalitions. Employers are also collaborating with one another to encourage innovation and savings. The Health Transformation Alliance, a coalition of more than 40 large employers including American Express, IBM, and Coca-Cola, is negotiating group purchasing contracts, advocating for greater transparency in prescription drug pricing, and contracting with IBM Watson Health to analyze health data. The purchasing contracts are anticipated to save a combined $600 million over 3 years.
  • High-performance networks. Employers are offering narrow networks of high-quality, efficient medical service providers selected to provide affordable care for employee populations. According to a 2017 PwC survey of more than 788 employers, 30% were considering implementing HPNs.
  • Value-based insurance design. Some employers are adjusting their benefit structures to encourage optimal utilization, such as reducing prescription co-pays for chronically ill employees to improve medication adherence.
  • Bundled payments and episodes of care. Both insurers and employers are following Medicare’s lead by negotiating flat rates for routine procedures such as knee and hip replacements and some types of cardiovascular surgery. As described above, some large national employers are contracting directly with COEs for certain procedures. COEs typically offer high-quality care with above-average outcomes, while keeping costs flat under bundled payments — a win for all involved.

Similarly, many large, self-funded employers are partnering with commercial payers to offer clinical episodes of care for their employees, which look like bundled payments but encompass a broader spectrum of services. UnitedHealthcare, for example, has a national program for knee, hip, and spine procedures. Participating employers with self-funded health plans have recorded average savings of $10,000 or more per operation compared to median costs in the same metropolitan area. Employees are also eligible to save $1,000 in out-of-pocket costs by using a participating facility. While current programs largely focus on clinical episodes triggered by elective surgeries, their expansion to chronic medical conditions could provide an even greater market impact and improved patient outcomes.

  • Reference pricing. Setting a fixed price for a high-volume service such as an MRI or for prescription drugs, and encouraging employees to comparison shop using a decision-making aid, can also facilitate more informed purchasing decisions. Expert second-opinion programs, such as Grand Rounds and 2nd.MD, help match patients with the most appropriate, highest-quality care providers and provide educational support, and they may reduce complication rates by 25%.
  • Telehealth. Employers are increasingly offering their employees the ability to access health care providers over the phone or via Internet, so they don’t have to sacrifice either work time or personal time to get to a medical office. In the Willis Towers Watson survey, 64% of employers reported offering telemedicine services to their employees, up from 11% in 2012. That number could reach 92% by 2018, with 41% offering behavioral health and telepsychiatry services by then.

Finding Savings and Improving Outcomes

As employers continue the journey to value-based care, a few organizations stand out for their experiences:

  • The Employer Centers of Excellence Network (ECEN) is a program created by the Pacific Business Group on Health for large employers who want to utilize value-based care purchasing, specifically bundled payments. Current participants include Wal-Mart, Lowe’s, McKesson, and JetBlue. The ECEN has saved $5 million annually in avoided unnecessary care, and has seen better patient outcomes with lower rates of preventable complications.
  • California-based CalPERS, the nation’s second largest purchaser of health care services, provides health benefits to more than 1.4 million public employees, retirees, and their families. The organization established reference pricing for hip and knee replacements after it identified wide variation in procedure cost. Since 2010, reference pricing has saved CalPERS upwards of $31 million.
  • Aerospace giant Boeing, which spends more than $2.6 billion annually on health coverage for more than 500,000 employees, retirees, and dependents in 48 states, has worked extensively on new care models and payment reform. The company has entered into arrangements with multiple COEs, including the Mayo Clinic and Cleveland Clinic, to cover medical expenses and travel for employees with specialized health needs who use these providers. Boeing is also developing a broad ACO strategy that incorporates models such as medical homes and the Intensive Outpatient Care Program, an initiative designed for medically complex, high-risk patients. The initial Intensive Outpatient Care Program pilot, rolled out in 2007, demonstrated a 20% decrease in annual spending per member. The organization is now focused on ensuring that high-performing ACOs are available to most employees across the United States.

Next Steps for Purchasers

Employers, as purchasers of health care, have the ability to drive change among both payers and providers. Even for smaller organizations that lack the heavyweight purchasing power of Boeing or CalPERS, introducing elements such as employee decision-making support and telehealth has the potential to lower costs and improve the quality of care.

As more organizations recognize the benefits of value-based purchasing, and start incorporating new models into their benefit structures, momentum will continue to build. As the future becomes clearer, value-based purchasing needs to remain a priority for employers to lower their health care costs and provide better quality care for their employees. This, in turn, will help businesses and their workforces remain economically strong.


Read “Economic Investment and the Journey to Health Care Value” — Part I: Health Care Providers and Part II: Health Care Payers.

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