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Employers Look to Value-Based Health Care Strategies

The aim is to steer employees to high-value, cost-competitive providers

A nurse talking to a patient in a hospital.

Employers are nudging workers toward high-performing doctors and hospitals and away from wasteful services and low-rated health providers in an effort to cut costs and improve employee health.

The 2019 Best Practices in Health Care Employer Survey by consultancy Willis Towers Watson shows that more employers are incorporating so-called value-based approaches into their health plans. Based on responses from benefit decision-makers at 610 U.S. employers with at least 100 employees, polled in mid-2019, the survey found shifts toward:

  • Lower out-of-pocket costs when employees choose health care providers within high-performance networks (expected to be adopted by 52 percent of employers by 2021, up from 16 percent in 2019).
  • Use of highly rated centers of excellence for specialized health care services, such as cancer care or joint surgery (growing to 74 percent, up from 45 percent).
  • Lower out-of-pocket costs to steer employees toward services that produce positive health outcomes at a lower price tag (growing to 46 percent, up from 17 percent).
  • Higher out-of-pocket costs for commonly overused and sometimes unnecessary services (growing to 35 percent, up from 7 percent).

In addition, the number of companies reducing out-of-network reimbursements, eliminating nonemergency out-of-network coverage or negotiating full disclosure of all related administrative costs could more than double by 2021, the survey showed.

"With greater access to accurate and transparent data, employers can create value-based designs that make a smaller dent in employees' wallets and a big impact on their health," said Julie Stone, managing director of Willis Towers Watson's specialty practices within its health and benefits practice. Value-based approaches "hold the promise of the best health results at the best price."

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

Avoiding Harm

Beyond the heavy price that employers and employees pay for unnecessary health care, use of low-value services are harming patients, according to the University of Michigan's Center for Value-Based Insurance Design (VBID Center). For example, inappropriate CT scans can raise a patient's lifetime cancer risk, and overusing antibiotics can raise the risk of serious infection later in life by building up a patient's resistance to their effects.

"In an era of high-deductible plans, analyses have found that between 17 percent and 33 percent of spending on low-value care is paid by patients, leading to hundreds or thousands in financial exposure," the VBID Center reported, citing a study of the Minnesota Department of Health's claims database and other sources.

Smarter Spending

Employers should offer health plans that "make the services you shouldn't buy expensive," said A. Mark Fendrick, director of the VBID Center.

"Almost everyone agrees there is enough money in the U.S. health care system. We just spend it on the wrong services," Fendrick said on Nov. 11 at a conference of the National Alliance of Healthcare Purchaser Coalitions in Washington, D.C.

Unnecessary services, he pointed out, are characterized by:

  • Overuse beyond evidence-based rates that researchers believe to be appropriate.
  • Discretionary use beyond that recommended by best-practice benchmarks.

Also beware of presenting employees with an unnecessary choice of higher-cost providers, whose services are priced beyond competitive benchmarks, and providers whose low ratings reflect mistakes leading to preventable medical complications, Fendrick advised.

Examples of low-value services are available from the Choosing Wisely campaign, an initiative of the American Board of Internal Medicine Foundation that helps people choose care that is supported by evidence, is not duplicative and is truly necessary.

As examples of unnecessary spending, Fendrick highlighted five commonly overused services that are often routinely prescribed but shouldn't be:

  • Vitamin D screening, given that most people don't need vitamin D testing and no national primary care professional organization currently recommends population-wide screening for it, although health care providers and patients continue to frequently request the test.
  • Imaging in the first six weeks of acute low-back pain, since this type of pain typically subsides without treatment after a few weeks.
  • Prescribing branded drugs when identical generics are available.

While a vitamin D test might only cost $100, "that's roughly the same as a diabetic eye test," which can reveal diabetes in its initial stages and allow for early intervention, avoiding severe and costly health consequences, Fendrick said. So smartly designed plans would cover diabetic eye tests and not vitamin D tests.

"When fewer dollars are spent on low-value services, more high-value care can be provided," he said.

Fendrick praised an IRS rule finalized in July that added treatments for a range of chronic conditions to the list of preventive-care benefits for which a high-deductible health plan can pay—even if a plan enrollee's health care spending hasn't surpassed the plan deductible—without running afoul of the rules allowing pretax contributions to health savings accounts. Not treating chronic conditions such as diabetes or hypertension can lead to more-serious, and more-expensive, health issues.

Eying Plan Designs

"Moving from a volume-driven to value-based system requires a change in both how we pay for care and how we engage consumers to seek care," Fendrick noted. He advised employers to "make high-value services pre-deductible" to the extent they can and to watch out for plan designs from insurers or third-party administrators that "ask you to pay for things [your employees] shouldn't be buying."

While value-based approaches won't necessarily reduce health care spending in the short term, Fendrick said, they can promote better health outcomes on a dollar-for-dollar basis, even with the same plan premiums and deductibles. That leads to "more value from your health care dollar," he noted, and, ultimately, healthier employees.

He added, "When savings from reduced use of low-value care exceeds extra spending on high-value services, premiums will decrease."

New Guide Highlights Value-Based Cancer Care

The Northeast Business Group on Health (NEBGH), an employer-led nonprofit coalition, recently posted an online guide to high-value cancer care. Delivering Value in Cancer Care: The Employer Perspective recommends giving employees and their families access to screenings for early detection, second/expert opinions, care navigation, high quality networks and centers of excellence, behavioral health care, and palliative/supportive care.

The guide also provides advice on how HR and benefit leaders can engage with vendors and health plans to make employees aware of the benefits and services available to them.

"For a growing number of employers, ensuring that employees and families receive high quality cancer care and maximizing the value of spending on care are top priorities," said Candice Sherman, CEO of NEBGH. "Unfortunately, while these priorities are clear, the roadmap to achieving them is not"—a need that the new guide is intended to address.

Related SHRM Articles

Is There a Future for Price Transparency in Health Care?, SHRM Online, November 2019

Chronic Care Management Keeps Health Spending Under ControlSHRM Online, November 2019

15 Ways Employers Can Reduce Health Care Spending That Aren't Cost-Sharing, SHRM Online, February 2019 

13 Questions Employers Should Ask About Genetic Testing, SHRM Online, November 2018

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


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