HHS Secretary Azar Wants Employers to Help Control Health Care Costs

Employers have a vital role in making prices more competitive

Stephen Miller, CEBS By Stephen Miller, CEBS April 17, 2019
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To help rein in health care costs, employers can avoid plans with "backdoor rebates" on prescription drugs; contract directly with hospitals; and guide employees to high-quality, competitively priced doctors, Health and Human Services (HHS) Secretary Alex Azar said last week.

While people often look to the government to drive changes in U.S. health care, employers "represent a hugely important force, in many ways as important or more important than the federal government" because of the 180 million people in the U.S. who receive job-based health coverage, Azar said April 11 at the National Business Group on Health's (NBGH's) Business Health Agenda 2019 in Washington, D.C.

"No American should be going bankrupt due to the cost of health care services," Azar told the group representing large U.S. employers. The cost of health services and prescription drugs "should be accessible, transparent and, to the extent possible, predictable," he said. "We need new levels of competition in health care so that market forces can increase quality and drive down costs, just like they do throughout the rest of our economy. We need transparency around price and quality so that individual consumers and, in some cases, third-party payers can drive that transformation."

Targeting Drug Rebates

Azar encouraged employers to support an HHS proposal to end "backdoor rebates" that drug makers pay to pharmacy benefit managers (PBMs) and to require that any rebates be deducted from the cost consumers pay at the pharmacy counter. Although the proposal would apply to privately administered Medicare Part D prescription drug plans and "would not technically extend to the commercial market, we were clear in our proposed rulemaking that enforcement of this rule has to take into account the possibility of negotiations bleeding between the Part D market and the commercial market," he said. "As a policy matter, we believe that the need for upfront discounts is even greater in the employer market than in Part D."

PBMs receive "tens of billions of dollars in rebates without patients—or the employers who pay a big chunk of the bill—ever knowing where the money goes," Azar said. Replacing rebates with upfront discounts "will be an immensely positive step for patients, employers and prescription drug markets overall."

Lower-cost generic drugs—and brand-name drugs that have cut their list price—are "struggling to get placement on insurers' formularies because they have lower rebates they can funnel to the pharmacy benefit manager," Azar said, and that is holding back lower-cost options from patients who are covered through employer plans.

NBGH's 2019 Large Employers' Health Care Strategy and Plan Design survey report, based on responses from 170 large U.S. employers, found that 3 in 4 large employers do not believe drug-manufacturer rebates are an effective tool for helping to drive down pharmaceutical costs, and more than half are concerned that rebates do not benefit consumers at the point of sale.

Azar encouraged employers to press their insurers and third-party administrators to require that manufacturer rebates be passed directly to consumers, a development that, he noted, is already gaining traction.

[SHRM members-only toolkit: Managing Health Care Costs]

Contracting Directly with Providers

Along with reforming drug rebates, Azar pointed to other steps employers could take to make health care prices more competitive. For instance, he called it a positive sign that more employers are beginning to contract directly with health care systems and providers, such as hospitals and specialized providers (e.g., cancer treatment centers), that are rated as centers of excellence (COEs).

The share of large employers directly contracting with health providers rose from 3 percent in 2018 to 11 percent in 2019, the NBGH survey found.

Also speaking at the conference, Walmart's senior director of benefits strategy and design, Lisa Woods, discussed how the retailer has contracted with COEs such as the Mayo Clinic, Cleveland Clinic and Emory Healthcare for cost-competitive cancer treatment, organ transplants, knee and hip replacements, spine surgery and cardiac care. To incentivize employees to use these highly rated COE facilities, Walmart covers evaluation and care 100 percent after employees meet their deductibles, but imposes steep co-pays for these services outside the COE network.

For those who opt for treatment at a COE, Walmart pays for travel and lodging and provides an expense allowance for the employee and one caregiver.

Long-term health outcomes for employees in Walmart's COE program "are far superior" to those of employees outside the program, Woods said. For instance, time off work for spine surgery is 10.6 weeks through the COE program and 13.2 weeks for non-COE care, while hospital readmission rates for spine surgery were 0.3 percent at the COE and 6.5 percent for non-COE care.

A comprehensive look at Walmart's direct-contracting initiative was published in the March issue of the Harvard Business Review. Outside the subscriber firewall, Becker's Spine Review summarized key takeaways on joint-replacement savings under the program, and Managed Care has further insights into Walmart's contracting with COEs.

Guiding Employees to Quality Care

Employers' adopting consumer-directed health plans with higher deductibles encourages people to choose care options with more-competitive prices but only "if patients have the tools they need to shop around and drive value," Azar said. Too often, he noted, they lack such tools. To fill this void, employers can help to connect employees with highly rated, competitively priced providers.

In a conference session on health care navigation support, NBGH President and CEO Brian Marcotte likewise called on employers to "rethink consumerism to simplify decision-making." Benefits that help employees make health care choices include online platforms that show ratings for doctors and hospitals, and staffed "concierge" services that help employees choose providers based on health outcomes and prices. These offerings can also include medical-decision support, in which medical specialists evaluate the appropriateness of diagnoses based on a patient's submitted records and suggest second-opinion providers when appropriate.

The NBGH survey showed that 71 percent of large employers provide employees with medical-decision support tools, and 39 percent offer full concierge services.

HHS is interested in helping employers use health care navigation services and may incorporate them into federal health care programs. Employers that offer such services report that sizable shares of covered employees are using them.

While many employers are limiting the number of health care providers covered at in-network rates to weed out low-rated doctors and facilities, "narrow networks don't by themselves help to better educate the consumer" on why quality ratings matter, said Brendon Perkins, vice president for global benefits and mobility at Nielsen, a consumer data company.

Nielsen gave employees access to an independent, third-party navigation service from Grand Rounds, he said, "because it turns every interaction into an educational opportunity for getting people to better doctors," which can improve their health and avoid excess costs.

Related SHRM Articles:

HHS Proposes Targeting PBM Rebates for Prescription Drugs, SHRM Online, February 2019

Direct Contracting with Health Providers Can Lower Costs, SHRM Online, October 2018

For 2019, Employers Adjust Health Benefits as Costs Near $15,000 per Employee, SHRM Online, August 2018

Health Plans Shift Toward Paying Doctors for Value Provided, SHRM Online, January 2017


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