As healthcare costs continue to rise and margins remain under pressure, Houston-based Memorial Hermann Health System is leaning into value-based care and direct-to-employer strategies to slow spending growth and improve outcomes.
Hospitals nationwide are facing sustained cost pressure driven by labor expenses, pharmaceutical inflation and growing demand for specialty care. At the same time, employers are seeking more predictable healthcare spending and better control over high-cost conditions, prompting health systems to explore direct-to-employer arrangements and value-based models that emphasize utilization management and outcomes.
James McCarthy, MD, executive vice president and chief physician executive of Memorial Hermann, said the system’s strategy is grounded in the financial realities facing nonprofit health systems, including rising pharmaceutical costs, coverage shifts and the unsustainable trajectory of healthcare spending.
Memorial Hermann is the largest nonprofit health system in Southeast Texas and one of the region’s largest employers, serving a population with one of the highest uninsured rates among major metropolitan areas in Texas.
“We do know we’re going to have some impact with some of the changes in subsidies that are happening with the ACA,” he said during an interview with the “Becker’s Healthcare Podcast.” “So understanding how we pivot to meet those communities and try to keep them healthier to decrease their healthcare cost is a critical part of our strategy moving forward as well as reducing cost in all of healthcare.”
While value-based care has been a long-standing industry goal, adoption has been uneven. Many health systems remain heavily dependent on fee-for-service revenue, and taking on financial risk requires robust data infrastructure, care coordination and employer alignment. Dr. McCarthy said Memorial Hermann views value-based initiatives as essential.
“A huge amount of our strategy moving forward for the next several years is going to be on increased efficiency and increased value proposition for our patients, for our employees, for the employers we work with so we can try to bend this cost curve and keep things from accelerating at the rate that they are,” he said. “We think that value-based initiatives are going to be essential for us to be successful and to keep our communities healthy now and for generations to come.”
A central component of that strategy is Memorial Hermann’s direct-to-employer work. By partnering directly with employers, the system aims to target high-cost conditions through navigation, care coordination and more efficient care pathways.
“We think by working directly with employers, we can help them design targets around their employees, around specific pain points they have related to cost and drive more efficient models,” Dr. McCarthy said.
The system has rolled out healthcare navigator programs with several large employers, embedding resources within organizations to support high-cost, high-utilization patients. Those efforts are already producing results, particularly for chronic conditions that drive a disproportionate share of healthcare spending.
“We’ve been able to demonstrate a significant decrease in downstream cost for employers in diabetes and heart failure. We are looking at several other targets now where we know that if we actively navigate those patients, we can reduce their rate of hospitalization and their days lost from work. We’re seeing significant benefit in these programs,” Dr. McCarthy said.
In parallel, Memorial Hermann is taking a closer look at its own employee health plan costs. Healthcare employees tend to use more services and higher-cost care than the general population, creating additional pressure for large systems that are also major employers.
“Healthcare employees utilize healthcare at a higher rate than nonhealthcare employees,” Dr. McCarthy said. “We utilize expensive care because we know what we want and we want it now.”
Pharmaceutical spending has become a particularly acute pressure point for employers and health systems alike, especially as new, high-cost medications enter the market. GLP-1 drugs have sparked national debate over coverage, with many organizations opting to exclude them entirely. Memorial Hermann took a different approach. The system tied coverage to a structured metabolic and lifestyle management program designed to improve long-term outcomes and control utilization.
“We’ve come up with a comprehensive program where we bring them in metabolic weight loss management, get them enrolled for a healthy lifestyle, the things we know are essential for long-term success as a part of that program,” he said. “It’s a condition for participation using the GLP-1s; patients have to be enrolled in our program so that we can maximize the success and the value that we get, and our employees get, from being involved in a program like this.”
These efforts reflect Memorial Hermann’s broader focus on efficiency, affordability and long-term community health.
“We believe these are a valuable tool to improve our employees’ health,” he said.
