Three big employers partner to tackle health care: The more the merrier?

Health Care Current | February 6, 2018

This weekly series explores breaking news and developments in the US health care industry, examines key issues facing life sciences and health care companies and provides updates and insights on policy, regulatory, and legislative changes.

My take

Three big employers partner to tackle health care: The more the merrier?

By Bill Copeland, Vice Chairman, US Life Sciences & Health Care Industry Leader, Deloitte LLP

Last week,, Inc., Berkshire Hathaway, Inc. and JPMorgan Chase & Company announced they would form a new organization to reduce health care costs and improve satisfaction among their employees. These companies collectively provide health coverage to more than one million people.1,2,3 That certainly is a large group, but several health care purchasers cover more employees, including the federal government which covers about 8.3 million federal employees, retirees, and family members.4

I applaud the commitment of any organization that takes on something as massive and challenging as the US health care financing and delivery systems and tries to make it more efficient and effective. Indeed, employers play a pivotal role in health care financing. Kaiser Steel Corporation, which provided steel plates to the shipbuilding industry, opened care delivery sites near its steel mills. This was the foundation of Kaiser Permanente.5 Similarly, Henry Ford helped launch the Henry Ford Health System and its affiliated health plan to provide care to his autoworkers. In 1929, a school district in Dallas started a hospitalization policy for its teachers, which offered two weeks of paid hospital care for 50 cents a month. That was the catalyst for the Blue Cross and Blue Shield system.6

What needs to change?
Today, almost half of the US population (155 million people) receive some form of financial support from an employer to help pay for their health care.7 Among large purchasing organizations, I believe there is a common misunderstanding about the root cause of our inefficiencies, and what is needed to change the overall performance of our health care delivery (and consequently financing) system. The universal goal of such employer-based programs is to leverage their economies of scale and reduce costs through bulk purchasing. But health care is often local, and there are no economies of scale on a local level. While drugs and medical devices are expensive, targeting only those elements is not going to solve the problem.

If we compare the per-person cost of health care in the US to other countries, we can see that our total costs are higher because of the cost per service. It is not because we use more services per person. We don’t.8 Health care zealots learned this data point during their first health care 101 course. But we haven’t yet figured out how to improve our unit cost though greater productivity because we are trapped in the fee-for-service rules that determined long ago how health care providers get paid.

Why Moore’s Law won’t work in health care
In 1965, Intel co-founder Gordon Moore noted that the number of transistors per square inch on integrated circuits had doubled about every year since their invention. He predicted the trend would continue, and it has. This is now known as Moore’s Law. Employers understand Moore’s Law and expect the same is true for health care. But humans (clinicians) are not going to improve their productivity on an exponential level unless they start to clone themselves. However, there are significant opportunities to reduce cost and improve outcomes, and it is not that complicated. This does require change, and change is something we as humans are typically not very good at (let alone something as personal and important as our health).

First things first…we need to focus on the chronic and complex patients who make up less than 4 percent of the US population, but comprise between 70 percent and 85 percent of the total costs.9 Employers understand this formula well because it describes many attributes of their own business including customer segmentation for revenue and profit, and future growth opportunities.

To make a significant difference for this population of heavy health care users, we should change a clinical care delivery model that is transactional at best. The existing model, sadly, is not based upon what the doctor wants to do, but rather on what the doctor will be paid to do. How can that be? It is because reimbursement policies are based upon a century-old approach to taking care of patients. Many of today’s patients would not have survived 100 years ago.

We have different demands now, and the policies of today often complicate the change that is needed. These policies are commonly getting in the way of the transformation and it is often lowering the earnings power of the physician while making it more difficult for the patient to access their caregivers. Most importantly, the outdated reimbursement system is increasing the cost and complexity of the system.

Along with updating the payment system, we also need help from regulators. We need policies that help establish a common language for communicating data and information among the ecosystem partners—outcome measures rather than process measures—so we can strive for the best outcomes. And changing health care payment methodologies that could unlock the constraints of fee-for-service, allowing us to create clinical models that evolve to best serve today’s patients.

Although it might work for other industries, applying supply-and-demand principles to health care is a common mistake. Technology is an enabler to health, but is not going to replace the personal trust people have with their physicians. Likely the real magic to addressing our problems is to tie incentives to outcomes for the providers in our payment approach, and release them from the current payment constraints. We need to apply technology to improve productivity, transparency, and convenience. Why is this so hard?

If we could get employers to align on what is really needed to change our current system—to take better care of our chronic and complex care patients—everyone could benefit…even those who don’t need any health care…yet.

Email | LinkedIn

1 Amazon 4th quarter 2017 earnings:
2 Berkshire Hathaway third-quarter 2017 earnings:
3 JP Morgan Chase investor relations letter, 2016:
6 Lone Star Legacy: The Birth of Group Hospitalization and the Story of Blue Cross and Blue Shield of Texas
7 Kaiser Family Foundation, 2016
9 Based on Deloitte analysis


Subscribe to receive the Health Care Current via email

In the news

CMS proposes 1.8 percent rate hike for Medicare Advantage plans

On February 1, the US Centers for Medicare and Medicaid Services (CMS) announced that it would increase payments to Medicare Advantage (MA) plans by 1.84 percent on average, and offer greater flexibility around benefit design, while putting limits on beneficiaries’ access to opioid medications. In its 2019 Medicare Advantage and Part D Advance Notice and Draft Call Letter, CMS outlined proposed updates to the methodologies, including risk adjustment, used to pay MA plans and Part D sponsors. Key proposals include:

MA risk adjustment: CMS made two main proposals around risk adjustment, one required by law and the other which will limit use of encounter data in the system.

  • The 21st Century Cures Act required CMS to factor in mental health, substance use disorders, and chronic kidney disease conditions into the methodology. The number of conditions an individual beneficiary has might also be considered.
  • The agency proposed calibrating the risk adjustment model with more recent data, selecting diagnoses with the same methods used for encounter data, and supplementing data used in payment with inpatient data for the historical risk adjustment system. Additionally, CMS proposed calculating risk scores by basing 25 percent of the score on encounter data diagnoses, and 75 percent on diagnoses from the Risk Adjustment Processing System (RAPS).

Expanding supplemental benefits: Currently, CMS does not allow supplemental benefits if the primary purpose is daily maintenance. However, the agency proposed expanding the scope of the primarily health-related supplemental benefits to include daily maintenance care if they compensate for physical impairments, diminish the impact of injuries or health conditions, or reduce emergency room utilization.

Increasing oversight of opioids in Part D: CMS proposed:

  • Expanding the overutilization monitoring system (OMS) to identify high-risk beneficiaries who use drugs that intensify the effects of another drug in combination with prescription opioids
  • Adding a new Pharmacy Quality Alliance (PQA) measure to evaluate Part D sponsors’ commitment to reducing opioid abuse (concurrent use of opioids and benzodiazepines)
  • Limiting supply of opioids prescribed for acute pain
  • Requiring all plan sponsors to implement point-of-sale limits for duplicative, long-acting opioids
  • Requesting feedback on limits for concurrent opioid and benzodiazepine prescriptions.

President speaks to health care in State of the Union address

On January 30, in his first State of the Union address, the president noted several health care-related priorities for 2018. These include efforts to:

  • Reduce the cost of prescription drugs
  • Enact right-to-try policies that give terminally ill people access to not-yet-approved treatments
  • Fight the opioid epidemic and boost treatment capacity for those who need it

Alex Azar, the recently appointed US Department of Health and Human Services (HHS) Secretary, issued a statement. He highlighted the administration’s efforts to combat opioid abuse to date, noting in particular the Public Health Emergency declaration and an increase in federal grant funding (see the January 30, 2018 Health Care Current).

Hatch suggests moving 340B program to CMS

Sen. Orrin Hatch (R-Utah), chairman of the Senate Finance Committee, requested that incoming HHS Secretary Alex Azar move the 340B Drug Pricing Program (see the January 9, 2018 Health Care Current) from the Health Resources and Services Administration (HRSA) to CMS. CMS is in the Finance committee’s jurisdiction. The program provides drug discounts to hospitals that serve a large number of low-income patients.

Hatch expressed concern that HRSA, a small agency within HHS, does not have the capacity or regulatory authority to effectively oversee the program. The letter also notes that the program grew after the Affordable Care Act expanded the program to more hospitals.

Both the Government Accountability Office and the HHS Office of Inspector General (OIG) have expressed concerns about 340B’s program integrity. HRSA, according to OIG, has made some, but not all of the changes it recommended. OIG suggested that the agency might need more statutory authority to properly oversee the 340B Program.

Hatch provided a list of questions to Azar and requested that HHS reply to his committee by February 26.

Report: Oregon 1115 waiver program is slowing cost growth, improving outcomes

Three years after implementation, Oregon’s care model slowed cost growth and improved the health of beneficiaries, according to a new report from university researchers. Under the model, 16 regional coordinated care organizations (CCOs) cover all physical, dental, and mental health care services of the state’s Medicaid population.

As part of its 1115 waiver, Oregon committed to keep health care cost growth at 3.4 percent or below each year; CCO budgets were capped at that amount annually. The 3.4 percent growth rate was above the national rate for 2013 but lower than every year that followed. CCOs have global budgets and pay hospitals, doctors, and can furnish non-health services if they improve outcomes. The state pays bonuses for improving outcomes. Researchers found that the CCOs improved many outcomes measures, especially those tied to bonuses.

The researchers compared Medicaid programs in Oregon to Washington and found that Oregon’s enrollees used fewer services, and the state paid less for health care services. Oregon enrollees said that they received higher quality care and that their outcomes were better under the CCO model. Generally, CCOs cut spending on inpatient hospital care and saw prescription drug costs rise.

In 2014, none of the CCOs had negative margins, but in 2016, three of the 16 CCOs had negative margins, and one of the largest CCOs recently announced it would shut down. A question is whether the program’s spending cap is large enough to account for spending trend, which has grown over time.

(Source: Jonah Kushner et al, “Evaluation of Oregon's 2012-2017 Medicaid Waiver,” Oregon Health & Science University, Center for Health Systems Effectiveness, January 2018)

CMS to institute a ‘rolling hold’ for therapy cap claims

CMS started to process “therapy cap” claims from January 1-10, 2018 that were placed on hold after funding expired. Starting January 31, the agency began processing remaining claims on a rolling basis with a 20-day lag to minimize care and payment disruption in the event that Congress authorizes funding (see the January 30, 2018 Health Care Current).

Most Medicare beneficiaries face a $2,010 annual cap on Medicare payment for outpatient therapy, such as physical or occupational therapy. In the past, Congress has enacted legislation to lift the cap if physicians say it is medically necessary, but that authority has expired.

Employees spending more on health, even with insurance

Employees are spending a higher proportion of their income on health care expenses, even when they have employer-sponsored coverage, according to an Axios analysis of US Bureau of Economic Analysis data. Axios examined trends in private health insurance and individual incomes. While the value of private health insurance relative to gross domestic product (GDP) has remained largely flat, salaries and wages decreased from 46.9 percent of GDP in 2000 to 43.4 percent in 2016.

Higher out-of-pocket cost sharing has its adherents and detractors. Some economists say this could encourage employees to be more price-sensitive for their health care expenses. Others argue that, as employees pay higher premiums, deductibles, and copays, many might not be able to afford needed care.

(Source: Bob Herman, “The erosion of worker compensation,” Axios, January 2018)

CMS report: Half of MA provider directories have errors

More than half (52 percent) of MA plan provider directories include at least one error, according to directories reviewed by CMS. Common errors included incorrect phone numbers, and information about whether clinicians were accepting new patients.

MA enrollees and caregivers use the directories to select doctors and other clinicians. CMS noted that inaccuracies might lower plan enrollees’ opinions of the plan or hinder access to care.

Medicare Advantage plans need accurate information on which practitioners are in their network not only for directories, but to operate value-based care programs and to engage with their network clinicians more broadly (see Danielle Moon’s November 21, 2017 blog).

Health IT investment in US is on the rise

Investment in health information technology (IT), including venture capital and growth equity, totaled $7.1 billion last year in the US, an increase of more than $4 billion over the last four years, according to the semi-annual health IT market review by Healthcare Growth Partners (HGP). Increased purchasing of electronic health records by hospitals and clinicians, in part due to federal regulations and quality standards, contributed significantly to this trend. The authors suggest this increase will continue to fuel investment and market growth, though demand is increasing for a host of other products as well, including telehealth technology.

The report cautioned against excessive optimism that this market would continue to grow at this rate into the future. In HGP’s survey of C-level and development professionals from health IT companies, more than a third of respondents said the health IT market could be a bubble.

(Source: “Health IT & Health Information Services Semi-Annual Market Review,” Healthcare Growth Partners, January 2018)

VA, CMS launch new partnership to reduce fraud, waste and abuse

On January 23, the US Department of Veterans Affairs (VA) and CMS announced a new partnership to share data, data analytics tools, and best practices to prevent fraud, waste and abuse. Through its Center for Program Integrity, CMS saved roughly $17 billion in FY2015. The VA hopes to build on this success. Specifically, the agency is focusing on its use of advanced technology, statistics, and data analytics to detect fraud. The VA has sought fraud-prevention information and tools from private-sector technology experts as well. In the program’s announcement, VA Secretary David Shulkin said that collaboration between federal agencies is part of the administration’s 10-point program to reform the department.

Breaking Boundaries

AI’s growing role in drug discovery, development, and approval

A growing number of biopharma companies are turning to artificial intelligence (AI) to streamline the drug development process at every stage. AI algorithms can analyze large data sets from a wide variety of data sources, including electronic health records, genetic profiles, and pre-clinical studies. With these data, it can recognize patterns and trends and develop hypotheses at a much faster rate than researchers alone.

Drug discovery: The early stages of drug discovery can be risky, expensive, and time-consuming. AI could disrupt the traditional ways of screening large numbers of compounds and molecules for potential drug candidates, and classify drugs into categories of therapeutic use with a high degree of accuracy. This can potentially be done in a shorter time frame, and for less money. Even incorrect answers from AI could be useful, as they might identify secondary uses for drugs that scientists would not have otherwise considered. This could make the drug-screening process less risky for investors and companies.

Drug development: Once biopharma companies enter the clinical trial phase, AI has the potential to improve study design and decision-making. Digital platforms are helping to accelerate patient recruitment for trials, and researchers are beginning to use AI to identify potential candidates through targeted advertising. Once patients are recruited, machine-learning can boost enrollment by studying why patients accept or decline invitations to participate in relevant studies.

Many in biopharma are increasingly focused on how they can use data to give patients and consumers a better experience—be it enrolling in clinical trials or learning more about the experiences of patients, their diseases, and what is most important in their treatment. They also want to figure out how to help patients adhere to a medication regimen. A trial might run more smoothly if AI can help researchers predict how different patients will respond to a drug, or modify data collection or trial criteria as needed.

Drug approval: Filing for a new drug application (NDA) with regulators can take an average of eight months, with some filings taking longer. Biopharma companies that are not looking for ways to speed this process (without compromising on quality or leading to staff burnout) risk falling behind the companies that are identifying faster, less expensive strategies. AI is becoming a critical strategy for faster filings. AI can help with automated writing processes, making it possible for authors to write certain sections and descriptions of the data only once and populate it automatically through the dossier—for quick retrieval. Authors can also start the dossier with two or three potential informed scenarios of what the data may show, based on early findings, saving time.

Deloitte’s recent report, A new future for R&D? Measuring the return from pharmaceutical innovation 2017, highlights AI and other emerging technologies that have the potential to optimize the research-based biopharma value chain.

Did you find this useful?