What Makes a Hospital Attractive to Employers?

Population health management has become a mainstay in the American healthcare landscape, but many hospitals and health systems are still determining what "population health" looks like for their organization. Most recently, physician groups, hospitals and insurers have become hyper-focused on accountable care organizations, patient-centered medical homes and other performance-driven models.

But as providers and payors partnered for these initiatives, one major player seemed to be missing from the broader picture: employers. And right now, as large employers face pressures to trim healthcare costs, better manage employees' health coverage or completely revise their benefit plans, companies are eager to engage in partnerships.

"It’s a relatively new phenomenon, starting with large national employers who are pushing the envelope," says Warren Skea, PhD, director in PwC's health enterprise growth practice. "We have seen partnerships occurring in markets where there is a large employer, and they see  inefficiencies and redundancies in care. They proactively go to a provider and say, 'It's important we manage our healthcare costs. We're going to partner with somebody.'"

A major question has been whether large employers will drop coverage in 2014, sending employees to insurance exchanges, or switch to defined contribution plans. But a July 2012 study from Deloitte found 81 percent of companies with 50 or more employees planned to continue providing benefits in the next one to three years. This suggests many companies are still looking to optimize their benefit programs rather than abandon them.

This article explores providers' direct contracting relationships with self-insured employers, such as bundled payments and narrow networks, and discusses factors that can make or break a provider's chance to be involved in those programs.

Lessons from Cleveland Clinic's ties to employers
Cleveland Clinic has blazed a trail with its employer partnerships. In 2010, the system struck a direct-to-employer deal with the home improvement giant Lowe's, based in Mooresville, N.C. Under that agreement, more than 225,000 employees and their dependents enrolled in Lowe's self-funded health plan can travel to Cleveland Clinic for heart procedures. Lowe's then covers all medical deductibles, coinsurance payments, travel costs and lodging for the patient and a companion.

It was an innovative partnership at the time, according to Michael McMillan. As executive director of market and network services for Cleveland Clinic, Mr. McMillan and his team are the architects of Cleveland Clinic's direct-to-employer program, called the Program for Advanced Medical Care. "It was a unique and innovative approach to solving a couple of problems that, in this case, a large, multi-state employer had."

Prior to striking the deal, Lowe's observed variability in outcomes among its employees' heart care, as roughly a quarter of a million Lowe's staff throughout the country visited different physicians and hospitals. Furthermore, a "very small percentage" of its workforce was generating a large portion of costs, says Mr. McMillan. If Lowe's could get employees who needed highly specialized care to an organization that demonstrated the best outcomes, health costs might decline while employee health improved, along with gains in productivity.

Cleveland Clinic, rated first in the country for cardiac care by U.S. News & World Report since 1994, was an attractive partner for Lowe's. Cardiac surgery is a big-ticket procedure, which justifies the company's reimbursement for airfare and other travel costs. Since that first deal, Cleveland Clinic has continued forming relationships around its centers of excellence with an array of large employers.

In October 2012, the system was one of six across the country to partner with Bentonville, Ark.-based Wal-Mart Corp. Under that bundled payment program, 1.1 million employees and their dependents covered by Wal-Mart's health plan can travel to Cleveland Clinic for cardiac surgery with the employer covering deductibles and travel costs for the patient and a companion. The clinic also struck a deal with Seattle-based Boeing that same month, under which roughly 200,000 of the aerospace corporation's employees, retirees and dependent family members can receive heart care at the health system for a fixed price.

"We're in active discussions with a lot of employers, and we anticipate having many more relationships," says Mr. McMillan. "For this line of business, the idea is that not every patient needs to travel — we look for services for which travel makes most sense. So we anticipate a number of these arrangements."

What makes an attractive health system partner?
Generally, the employer approaches the provider for potential partnership programs, but experts say health systems can and are becoming more proactive in these discussions. Large employers seek certain traits in a provider partner, and health systems should be prepared to demonstrate these critical qualities to further their partnership opportunities.   

Value is at the intersection of a provider's outcomes and its costs, and is the most significant driver for any joint provider-employer initiative. As employers become more sophisticated in their understanding of healthcare costs, they will pursue systems that demonstrate quality outcomes, aligned incentives, transparency and the proven ability to manage population health.

Outcomes and transparency. Demonstrated positive outcomes are the biggest selling point for providers, but how a system opts to share its outcomes is nearly as important as the data itself. Employers and companies are likely to expect this information to be made available in the next few years, especially as they work to get healthcare costs under control. In the July 2012 Deloitte survey, 37 percent of large employers, or those with more than 2,500 employers, said their core strategy to manage healthcare costs was analyzing costs and outcomes for local physicians and hospitals.

In many ways, Cleveland Clinic has led the way in measuring and publicizing its outcomes. CEO Delos "Toby" Cosgrove, MD, is credited with developing the system's "outcomes books" when he served as chief of cardiac surgery. The system publishes outcomes data in book format for its centers of excellence and makes it available by request, treating these outcomes books as a major investment. The information shows the clinic and its physicians can deliver reliable outcomes with little variability, which is just what employers want in a direct partnership.

Aligned incentives. The terms of the partnership, such as Cleveland Clinic's bundled payment arrangements with employers, will be critical in aligning incentives. Through bundled payments, providers are incentivized to reduce variations and deliver care more efficiently while still delivering superior outcomes.

But employers want a partner who has some skin in the game, and a large part of this can also come down to how physicians are paid. Like some other large, integrated systems, Cleveland Clinic has a unique advantage with salaried physicians. This eliminates a host of concerns about unnecessary or duplicative care — extra services that would come at the employer's expense.

"I think that offers an advantage to employers in that, not only is it one stop shopping with all services in one box, but because doctors don't have direct financial incentive to do one thing or another aside from what is in the best interest of the patient," says Mr. McMillan.  

Roger Merrill, MD, is CMO of Salisbury, Md.-based Perdue Farms. The poultry company has contracted directly with physicians and hospitals for more than a decade, penning up to roughly 15,000 contracts for more than 30,000 employees and dependents, according to an American Medical Association News report.

Leaving the payor out of the mix has worked for Perdue, as its healthcare costs for employees have clocked in at less than half of the national average. "We at Perdue and the patient and provider all have the same goal," Dr. Merrill said in the news report. "We all want to maximize the health of the patient. Typically, large insurance companies do not have that same goal."

Geography and access. A provider's employer partner might be located just down the street, across the state, or even halfway across the country — depending on the service. The cost of cardiac surgery justified the price involved for Lowe's to fly employees to Cleveland for care. And a stream of out-of-state patients is not unusual for Cleveland Clinic, since about 50 percent of its 4,200 heart surgeries are performed on patients from outside Ohio. The system might expand some of its employer partnerships to include orthopedic procedures, since many of those services fall into the big-ticket category as well.

The geographic proximity for these partnerships, or how far employers are willing to send workers for care, comes into question depending on the complexity and cost of the service in question. High-risk procedures might be worth the travel if a provider can demonstrate best outcomes. "Other things might be more local," says Mr. McMillan. "If you provide a direct relationship with an employer for obstetrics services or occupational medicine, those would be more of a local situation."

Infrastructure. When payors are involved in population health models with employers or providers, they can meet an administrative need and handle claims adjudication. "But we've also seen models just between the providers and employer directly, cutting out the middle man," says Dr. Skea from PwC. "More often than not, those are typically [relationships] with a provider that has an insurance license and experience with population health."

Employer-provider relationships do not have to come in parties of three, according to experts. While some models do have a payor involved, it's not a necessary component. But providers that do enter direct employer strategies may need insurance licenses, which can create complexity and extra planning, as the process can take up to 18 months.

"Anything that holds promise for shared savings is attractive to employers," says W. Yale Miller, executive vice president of Nashville, Tenn.-based Aegis Health Group. "I think providers have an opportunity to step into what might be an information void as opposed to saving that conversation for payors. If [providers] are proactive in talking with major employers, they stand to be in better position."

Providers with prior experience have an advantage, but it's not too late
Employers are well-suited to approach health systems that have demonstrated success with previous employer partnerships. Cleveland Clinic is exemplary in this respect, but smaller systems or hospitals may have fewer resources, still operate on fee-for-service payment models or are located in highly competitive markets. Not to fear, say experts. Even health systems with limited experience with employers haven't missed the boat.  

"In a funny way, even hospitals that haven't historically had employer-facing efforts are still well positioned at the end of the day. After all they too are employers, most of them large ones, facing the same health cost issues," says Pearson Talbert, president and CEO of Aegis Health Group, a hospital business development firm. "It's about refocusing from sick-care to healthcare and then re-messaging what you already do."

One of the richest opportunities for systems looking to expand relationships with employers is to begin with their own workforces. The Deloitte survey found 62 percent of employers anticipate increasing their wellness and preventive health programs as part of their benefits strategy in the next three to five years. Companies will be more attractive to hospitals that have done the same and can point to the improved health of their own population.

This is a multidimensional task, as hospitals have some of the least healthy employees in the country: A 2012 study by Truven Health Analytics found hospital employees are less healthy than the general workforce and cost more in health care spending. But by establishing a wellness program or other population health initiative, systems can learn initial lessons about population management, fine-tune care processes and use the experience as a foundation for their population health strategy.

There are other avenues for health systems that are relatively green in employer relationships. A hospital's occupational health department can serve as a natural extension to managing employees' health, according to Mr. Miller. "Second, if they're doing some sort of community-based education or health screenings, hospitals can think about redeploying those assets to some key employer groups and providing feedback to employers and their workforces. That's mutually beneficial sharing of information."

More Articles on Hospitals and Employers:

6 CEOs Weigh in on ACOs, Employee Wellness, Payor Relationships
Taking Care of Employees: 5 Trends on Hospital Benefit Plans
5 Ways Population Health is Transforming Hospital Strategy

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