To Improve Your Company’s Health Care, Get the CEO Involved
As the debate heats up again about whether government should take over the funding and management of health care it is worth trying to figure out the enduring enigma of why employers have been unable to manage health care costs. After all, one of the promises of having employers play such a prominent role in the sector is that they would bring their management and innovation expertise to the issue. Yet a multitude of prior efforts by employers to manage costs, eliminate waste, and improve quality have failed. Why? The missing ingredient is CEO leadership. CEOs need to treat health care costs as a core business issue and do three things: take control, be bold, and get big.
As the debate heats up again about whether government should take over the funding and management of health care it is worth trying to figure out the enduring enigma of why employers have been unable to manage health care costs. After all, one of the promises of having employers play such a prominent role in the sector is that they should bring their management and innovation expertise to the issue. Yet a multitude of prior efforts by employers to manage costs, eliminate waste, and improve quality have failed.
Why? From my experience managing costs for GE under Jack Welch and currently doing the same for Steve Schwarzman and Blackstone’s portfolio of companies, I think the missing ingredient is CEO leadership. Getting the CEOs of Blackstone’s companies to approach health care costs like they do other parts of their business has resulted in increases that have been at or less than the consumer price index for the past decade — outperforming their competitors by several hundred basis points annually.
CEOs need to treat health care costs as a core business issue and do three things: take control, be bold, and get big.
Take control. It is a management maxim that CEOs take personal ownership of their firm’s toughest challenges. But despite their rhetoric, business leaders have not treated health care costs as a core business issue. They delegate the responsibility to their human resources department, which is measured on employee satisfaction and has no accountability for the company’s financial performance. This makes little sense. HR professionals rely on insurance brokers to provide expertise. Brokers are rarely equipped to help employers develop effective health care strategies. Many states do not require a college degree for licensure, and brokers get commissions and hefty fees from the very health suppliers that employers hire them to select and manage.
Companies where CEOs take control manage spending effectively. They commit to learning about where their costs are going and engage top consultants with deep backgrounds in the sector to educate them.
At Nielsen, an information and measurement company and a former customer of my firm, Equity Healthcare, the CEO overruled a tentative HR team and pursued a consumerism approach that included offering employees financial incentives to stay healthy and for those with high-cost conditions to get expert second opinions before undergoing treatment and to go “centers of excellence” — providers that had a track record at delivering high-quality outcomes at a low cost. Cost increases have been below the consumer price index for several years.
After studying his company’s health care spending, the CEO of a leader in the economy lodging sector was concerned that the cost of specialty drugs could consume his earnings. Consequently, he had his company adopt a formulary that covered new drugs only if the price was justified by the value of the health outcomes. No savings information is available yet, but having a CEO send a message that high drug prices could endanger his company’s competitiveness is sure to be heard by the leaders of pharmaceutical companies.
Be bold and communicate. The issue that most needs CEO leadership is balancing cost control and employee satisfaction. While employee-centric initiatives like worksite wellness and consumerism are important, too few employees get healthier or become smart consumers to move the needle on costs. Controlling costs requires steering employees to providers that can deliver high-quality care at the lowest price. There is clear evidence that high prices do not mean better quality, and organizations of doctors and hospitals are emerging that deliver better care at lower prices.
Given employees’ dislike of restrictions on the doctors they can see, most companies have concluded that it is not worth alienating labor to control health care costs. Instead, they have relied on shifting cost increases to employees in the form of higher premiums, deductibles, and copays. This approach, however, is reaching its endgame; high out-of-pocket expenses are alienating the scarce workers companies are trying to recruit and retain.
Companies that explain to workers why they are imposing restrictions on the providers that they can see, making them pay a higher premium to have more choices, or steering them to centers of excellence have been able to make these changes without employee friction. There is no evidence that employees don’t take or leave jobs they enjoy because of health care benefits.
After all, CEOs make bold moves that impact employees all the time in their core business, from closing plants to discontinuing products. They explain the reasons for the moves to employees, and employees accept change as a part of their work lives. It should be no different for health care changes.
Walmart boldly uses significant financial incentivizes to steer employees to a limited number of centers of excellence for expensive procedures like spine surgery and hip replacement. The results have been eye-opening. Up to 50% of the time physicians at these centers of excellence recommend that the employees not have the procedure at all, resulting in significant savings. The company has had minimal employee complaints because the leadership has communicated the rationale for the approach just as they would any other significant change in company’s strategy.
Get big. Health care, like politics, is local. A large global employee base does not equate to volume and leverage in individual communities. Employers have relied historically on health insurers to be their volume aggregator, but insurers have been reluctant to shift volume to the best doctors for fear of alienating other providers. And despite multiple efforts over many decades, employers have had limited success on their own in aggregating volume to purchase the best health care.
While this failure has not been well-studied, anecdotal observations indicate that one reason is that employers are wary of surrendering their ability to customize benefits even though there is little difference between company designs. The root cause of this hesitation is inertia and the fear of being bold. Business leaders are in the best position to work with their peers to find ways for their firms to work together effectively. Options include engaging new companies such as Centivo, a third-party administrator that aggregates volume, and creating purchasing alliances.
The fundamental dynamic of Medicare and Medicaid under-payments to hospitals and doctors will continue to force these providers to shift costs to employers. Employers can’t do anything about that. But they can steer their employees to the providers that produce better outcomes at the lowest possible cost. They can band together to negotiate more effectively with providers. And they can do something to ensure that drugs are worth their prices. CEOs who take control will spend less on health care and so will their employees.
Robert S. Galvin, MD, is the chief executive officer of Equity Healthcare (EH), which manages health costs for over 70 firms owned by private equity companies. EH is a wholly owned subsidiary of the Blackstone Group, where Galvin is an operating partner. He is a member of the National Academy of Medicine and professor adjunct of medicine and health policy at Yale.
To Improve Your Company’s Health Care, Get the CEO Involved
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