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United: How employers are changing healthcare
The growth in employer coalitions are a sign that plan sponsors are increasingly flexing their muscles, but what do they hope to achieve?
After it was announced that they would form a new healthcare company to manage the needs of their million-plus employees, the phone started ringing at Amazon, Berkshire Hathaway and JPMorgan.
Other firms wanted to join the club.
“The ballooning costs of healthcare act as a hungry tapeworm on the American economy,” said Warren Buffet, Chairman and CEO of Berkshire Hathaway.
His words – and the move by his company – reflect the widespread frustration that many American businesses share about the country’s high-cost, high-complexity healthcare system.
“The resistance will be unbelievable, and if we fail, at least we tried,” added Buffet, his fighting talk mirrored by the new venture’s CEO, surgeon and author, Atul Gawande: “This work will take time but must be done. The system is broken, and better is possible.”
The Amazon/Berkshire/JPMorgan partnership is not the first employer coalition to focus on some of the structural problems with the US health system.
For Robert E. Andrews, former US Congressman and CEO of the Health Transformation Alliance – the largest employer coalition with 40+ members including American Express, Coca Cola, Shell and Marriott – the problem lies with the inherent incentives in the system.
“Providers are not incented to achieve optimal health results for people. Pharmacy benefit managers are incented to sell certain drugs whether or not they are the right drug for the patient. Hospitals are incented to perform as many procedures as they can, whether or not the procedures are the right ones for the patient. And, patients are not incented to engage in the right behaviors, whether that’s losing weight, quitting smoking or taking their medicine.
“As a result, we have a system where trillions of dollars a year are spent on perverse incentives. We think the job is to align those incentives with the optimal health result for the patient,” he says.
For Andrews, employers are the best fit to get this job done. “Government wants to do the right thing for people, but people are also voters and so some decisions don't sit well in a political context. Fully insured health plans only have covered lives for around a year at a time and so are not incented to invest in prevention and long-term health as they may not see the benefits. People themselves are too busy living their lives to fight back against his multi-trillion-dollar industry.
“That just leaves self-insured employers, our members, who are completely at risk for spending on health. Our interests are directly aligned with better health for the patient, also we have a covered life for 11 years typically, so investing in someone's health today will pay benefits for many years to come. We think we are best positioned to collectively change the incentives. We could do it one at a time but one at a time is not as effective as working collaboratively.”
The widespread focus on drug pricing among politicians and in the media has naturally pushed pharmacy benefit to the fore for such coalitions, with the number of medium and large firms joining drug-purchasing coalitions rising year on year, according to Mercer’s national survey of employer-sponsored health plans.
Surveys show employers are discontented with the current state of pharmacy benefit management, says David Dross, National Practice leader, Managed Pharmacy Practice, at Mercer. “They don't like the structure and there's not enough transparency so it’s not clear how drug prices are derived. There have been all sorts of bizarre situations, where someone can go into a pharmacy and pay cash for a prescription substantially cheaper than going through their plan, which makes no sense.
“We're rapidly getting to an inflection point where employers want to do something different, but, quite honestly, they don't have anywhere else to go. The big three PBMs – Optum, CVS and Express Scripts – have roughly 75-80 percent market share, and if they go elsewhere, that's a pretty big drop down. There are some more-transparent, smaller PBMs out there with a very open model [but] they don't have anywhere near the scale of the big players, and may not have the infrastructure to handle a jumbo employer, like an HTA member,” says Dross.
Size matters, agrees Nick Taylor, VP, Clinical Consultant, at The Segal Group. “There have always been coalitions where employers come together to purchase healthcare [because] they believe that size is important – the bigger they are, the more they can negotiate. This is true on many levels; for a PBM, it’s very different if you’re purchasing for 50,000 lives versus a million lives, and they can drive deeper discounts for a larger group.”
The growth in employer coalitions reflects market conditions, he adds. “Coalitions are trying to get bigger so that they can leverage themselves against the healthcare entities that are growing by the day. As the industry consolidates – if CVS-Aetna and Cigna-Express Scripts merge – the pressure from them to play entirely in their ecosystem grows. They want you to use everything they control; their doctors, their hospitals, their pharmacies. The employer will have to choose if they’re all-in or all-out, but you’d need a coalition large enough for these health entities to create more flexible solutions for you,” he says.
The big picture
The announcement of the new Amazon/Berkshire/JPMorgan company earlier this year caused a lot of buzz and sent shivers through the stock markets, but the eyes of most coalitions are not on such short-term issues.
For Robert Andrews of the HTA, the mindset of the health system needs a fundamental rethink. “We want a partnership where the question is, What drug will make this person healthiest? not, Which drug will get the biggest rebate? or Which is the cheapest drug? If a person has arthritis, what's going to give them more mobility and greater health? I'm not saying the pharma manufacturers or PBMs or retailers don't ever do that, but they only do that if it fits the context of the business models that are imposed on them. After all, they’re playing under the rules they were given.”
For employers, the focus is firmly on the patient. “We want to pay the price for the drug that best generates value for the patient. If there are two multiple sclerosis drugs, the first costs $200,000 a year and extends the quality of life for 10 years, and the second drug costs $100,000 a year and extends the useful life of the patient for two years, we want to pay the $200,000 because 10 years of health are worth more to us in the savings and the value than two years of good health and eight years of misery. The question becomes, What makes someone healthier?”
Pharma is a large part of that equation, he adds. “What we want from the pharmaceutical industry is their creativity. We're looking for ways to help them do what they've done magnificently for decades, which is to make tremendous strides in health. Childhood leukemia used to be a death sentence, now 90% of children who are diagnosed graduate from high school and become moms and dads. The pharma industry had a lot to do with that and we want to encourage it, not stifle it. But we also want to tie the income that is generated from those products to the results they achieve in people's lives, not in terms of how long they have a monopoly and how much they can charge for that monopoly.”
More than anything, the growth in coalitions over the past few years is a sign that employers are seeking – and will continue to seek – a far greater role in healthcare. “What we ask for is to be left alone,” says Andrews. “We don't ask for government subsidies or a set of rules or a special tax break; we just want the freedom to work within the existing rules, to honor them and make decisions that are best for our patients.”
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