Here's how cities and states can slash health-care costs by up to 40% — and save their coronavirus-decimated budgets – MarketWatch

City, county and state governments across the United States are staring down an unprecedented fiscal crisis, with the Center on Budget and Policy Priorities predicting a $615 billion revenue shortfall in the next fiscal year.

This budget chasm will dwarf the impacts of the
Great Recession, leaving critical services in the crosshairs in nearly every
community. Desperate state and local officials are hoping the cavalry is coming
from Washington, but another stimulus package is currently stalled-out in

For local and state governments, most of their
costs are in people. And that should mean taking a much more critical look at
their health benefits plans.

Employers, both in the public and private sector, have unwittingly contributed to the problem of bloated health-care costs by subsidizing low-value health plans linked to an old model called “fee-for-service.” In this system — which describes the vast majority of care Americans receive every day — medical providers have every incentive to always do more tests, schedule more procedures and prescribe more drugs. Primary care is especially hard hit. Doctors don’t have enough time to truly talk to and understand the needs of their patients.

The fix, in large part, is value-based primary
care. The incentives inherent in value-based primary care reward doctors for
spending more time on individual appointments. It’s the direct opposite of the
traditional model, in which more patients mean more treatment and more
treatment means more money.

The way to pay for proper primary care need not be any more complicated than paying for a gym membership (i.e., a regular monthly payment that covers all primary care). This saves both patients and physicians from stifling insurance bureaucracy.

Further, many public- and private-sector employers are directly contracting with health-care delivery organizations, saving the employer large sums of money while removing the pain of hospitals and surgery centers having to navigate the insurance bureaucracy thicket and then chasing down patients for what the carrier didn’t pay. We regularly see the cost of surgeries be 50% to 90% lower than what carriers have been paying — sometimes with the same surgeon but in a different facility.

Paradoxically, the best way to slash health-care costs is to improve benefits. Adding value-based primary care is just part of that process. To save 20% to 40% on health care and, in turn, save their budget, state and city leaders should:

1. Liberate themselves from the status quo: Stop accepting 10%-20% premium increases from old-line insurance carriers, and instead switch to an employer-optimized model where beneficiary claims are directly paid for by the employer.

In dropping carrier increases and their associated fees, immediate savings can be seen. One of the surprising things for employers is how easy it is to realize savings. Once they understand that clinicians only receive 27 cents of every $1 ostensibly spent on health care, they realize that much of the remaining 73 cents is waste that can be translated into wages and benefits for their staff.

2. Optimize health-plan infrastructure: Find an expert who is not only familiar with the tools required to implement a self-insured model (stop-loss insurance, a third-party administrator to process claims, etc.), but who is also willing to disclose carrier commissions and bonuses. This way, leaders can rest assured their adviser is working in their best interests.

We often find that the same organization that will reject a $76 item on an expense report for missing a receipt will pay sight unseen a $100,000 medical claim.

Since it’s not their money, carriers aren’t motivated to closely review claims. Thus, it’s imperative to replace them with a claims processor that closely watches claims since hospital bills are riddled with double charges, profiteering and items charged at rates 10 times what they should be.

Read: These companies are spending billions so robots can perform surgery without a doctor in the room

3. Carve out pharmacy benefits: Work with a transparent pharmacy-benefits manager (PBM) that recognize that plan sponsors’ claims data is their own. This enables leaders to potentially identify prescriptions for which there are lower-cost generics. Paying greater attention to their pharmacy claims data, $1.6 billion has already been saved for New Jersey state employees over three years.

4. Add value-based primary care: Higher-quality care during a patient’s first interaction with a physician can, as explained above, prevent subsequent health issues from popping up. It can also, as a result, reduce the need for a patient to visit the emergency room. As soon as the first ER visit is avoided (over half of ER visits aren’t emergencies), the savings start to rack up. After all, it’s impossible to price gouge or have a surprise bill for a ER visit that never happened.

Read: 3 trends behind the growth of house calls and medical care at the mall

5. Leave behind value-extracting PPO networks:
The average PPO pays 260% of Medicare rates (some much more!). Many providers
are willing to meet in the middle to ensure they have a pool of patients
eventually coming to them for medical assistance.

Governments across the country are already saving money by adopting this approach — and are getting better health care at the same time. The city of Kirkland, Wash., is one example. There, as part of the Healthy Kirkland Initiative, city officials enlisted the help of Vera Whole Health, a near-site value-based primary care practice. By providing higher-quality care at the outset, Vera Whole Health reduces the treatment costs that typically result from lower-quality primary care experiences that either miss or don’t have time to learn about or address the lifestyle factors that could be causing a patient harm.

In taking care of the Kirkland’s employees, in just one year, Vera Whole Health saved the city $2,400 per employee, and they had nearly 600 at the time.

Another is Pasco County Schools, Fla., which cut
costs by 5.63% and saved $117 million over nine years, or
an average of $13 million a year. The district improved benefits by
creating its own on-site drug-dispensing health and wellness center, waiving
copays for individuals willing to test what health conditions they are at risk
for, and switching to a transparent PBM.

“Shop local” approaches like these are preferred by employees. In a satisfaction survey conducted by Vera Whole Health, employees of the City of Kirkland had a satisfaction rating of 4.8 out of 5 stars. And many employers who embrace these approaches tend to report lower turnover; that of Rosen Hotels & Resorts is in the low teens, despite being in an industry where it can reach as high as 50% to 80%.

Read: Why you’re more likely to see a physician assistant than a doctor

Rosen Hotels & Resorts also shows how shop-local approaches are capable of serving all members of the community by repurposing previously squandered health-care dollars. Rosen’s savings went to education via the Tangelo Park Program, but savings can also be used to preserve essential community services during this economic downturn.

In a way, the immense waste in health benefits (estimated at one-third to one-half of all health care spending) is a Godsend. Right now, extracting that waste gives officials a chance to improve health plans and avoid massive staff and service cuts without dipping into reserves.

Doing so is essential for long-term success too.
Looking to the future, there is every indication that budget issues could
linger for years, as the nation only slowly recovers from coronavirus
shutdowns. The potential impact of government budget cuts is stark, but they
can be less so in the short term and
the long term if leaders start now in improving their health plans.

Dave Chase is co-founder of Health Rosetta, which aims to accelerate the adoption of simple, practical, nonpartisan fixes to the U.S. health-care system.

Now read: Here are real ways to fight the madness of health care’s inflated list prices and big insurance discounts

Also read: The U.S. can slash health-care costs 75% with 2 fundamental changes — and without ‘Medicare for All’

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