White paper breaking the cost trend6 5-11
- 1. INDUSTRY INSIGHTS
Breaking the Cost Trend
Why CFOs Are Turning to Healthcare Services Innovation to Improve the Bottom-Line
T
he Patient Protection and Affordable Care Act (PPACA) promises to change healthcare in America. As
the most significant and sweeping healthcare legislation in decades, the PPACA was heralded as a cost-
cutting measure that would improve access and insure the uninsured.
Despite these promises, most business leaders agree that the law does little to control healthcare costs and is likely to
lead to sustainable increases in the long-term cost to businesses. Moreover, the law further solidifies a shift in
responsibility from Human Resources to the Chief
Financial Officer. Even before March 2010, the role of
the CFO in managing healthcare costs was already central
to business strategy. Now that reform has been thrust
upon us, controlling costs requires more than just
negotiating new rates with a benefits broker/consultant.
Controlling costs needs to become a strategic direction
requiring a fundamentally new approach to services
delivery, one that breaks the healthcare cost trend,
making certain that employees not only receive quality
care, but that the burden on businesses is markedly
reduced.
Ironically, the very law that fails to deliver cost-reduction has become a catalyst for the evolution of services
delivery, and the CFO reluctantly, or deliberately, will lead the way.
The Leadership Shift
For employers, healthcare reform is no longer about compliance. Rather, a new level of coordination and leadership
is expected from the office of the CFO. The shift of responsibility has made the CFO a driving force in making a
Copyright © 2011 WhiteGlove Health, Inc.
- 2. strategic decision to invest in new innovative approaches to break their healthcare cost trend while improving
employee satisfaction.
Ultimately, the relationships that define the delivery of health
care and insurance are radically changing. Hospitals are
losing their primary role as service providers. Reform is
changing the way government, employers and insurers
address payments. Nurse practitioners are becoming
increasingly important in the supply chain of healthcare
delivery. Office visits with physicians are no longer the only
option for medical care. As a result, business leaders are now
required to take on an increasing role in reducing their
organizations cost and improving the overall health of their employees and dependents. A critical decision in this
process is the access to care and its fundamental cost to the business and the employees. Healthcare is no longer
simply an employee benefit, and CFOs are forced to drive fundamentally different strategies aimed at breaking their
healthcare cost trend.
According to a recent survey of CFOs by Deloitte Consulting in January 2011, CFOs expect health reform to
increase their costs, with “more than 90% expecting benefit cost per employee to rise and 50% expecting the quality
and/or breadth of offered benefits to decline.”
Such opinions may not be new, however, under the new law, if employers fail to offer employees minimum essential
coverage, employers will be fined $2,000 per employee. How “minimum coverage” is defined is yet to be
understood with the most significant cost curve being compliance. Most agree that the new compliance rules will
require structural changes and new strategies. Checking off a box will not suffice.
With the healthcare cost trend estimated to increase by 9% in 2011 alone and that does not include the cost due to
healthcare reform, simply redesigning the corporate health plan to minimize utilization or shift more cost to
employees will not work. In fact, history has shown that it does not work. Over the last five years, employers and
employers have absorbed double-digit increases, according to Kaiser. Companies that rely on part-time workers
may see costs increase as much as 30% to 50%. Historically, the healthcare cost trend has continued to rise by
double-digits over the last five years. Insurance networks are inefficient as the fee-for-service model drives the use
of services that are unnecessary and unwarranted.
The shift of healthcare cost from an HR issue to a strategic business direction also requires a shift in thinking and
leadership. Given that the cost of the underlying healthcare delivery system dramatically impacts the businesses
expense, the CFO will inevitably be expected to take a leadership role.
There is still great uncertainty. But one thing that is certain – the CEO is looking to the CFO for answers.
Copyright © 2011 WhiteGlove Health, Inc.
- 3. Pressure on the Cost Trend
In an October 2010 survey by Grant Thornton LLP, 30 percent of CFOs said they were planning to “reduce health
care costs per employee in the months ahead.” 84% cited healthcare and pensions as their greatest cost pressure—
up from 68 percent just six months prior.
Traditionally, larger companies have turned to self-insurance strategies to control costs. Today, more than half of
all U.S. companies self-insure including smaller and mid-size firms. According to a study by Pricewaterhouse
Coopers, employers with fewer than 1,000 employees that self-insure have grown from 29% in 2008 to 48% in
2010. However, whether self-insured or not, employers have no control of the inefficiencies and cost of the
underlying healthcare system and thus makes it impossible to truly break their cost trend.
Meanwhile, traditional insurers are reducing benefits. Providers such as Cigna, UnitedHealth Group and WellPoint
are all introducing “limited-network” plans to tackle rising costs. Aetna's limited plan in New York, for example,
cuts the number of available physicians in half and reduces the number of available hospitals by a third.
The 40% tax on so-called Cadillac plans will also force employers to adopt lower-costs. However, quality of care
could suffer as more and more employees lose access to personalized care. The 40% tax is on annual premiums
exceeding $10,200 for individuals or $27,500 for families. According to a study by Towers Watson, “more than
60% of large employers will hit those thresholds by 2018, assuming an 8% annual increase in health-care costs.”
Some companies are turning to on-site clinics as a way to reduce costs. While this may give their employees easier
access to healthcare, it really only increases costs. Beyond the cost of setting up and running an on-site clinic, it
increases access to a healthcare system that generates variable expense claims and thus generates more claims
expense.
As CFOs wrestle with rising costs, more and more management teams are focused on the cost trend – the marginal
rate of increase in healthcare costs to employers over time. While there has been much debate over current reforms
and their impact on the cost trend, best-in-class CFOs are seeking more innovative measures.
Rather than feeling like you have no impact on the cost trend, the new brand of CFO leadership is seeking to
“break” the cost trend. In order to do this, traditional service delivery models must be abandoned and a paradigm
shift in healthcare service must occur. Rather than focus on insurance reform, best-in-class CFOs are focused on
healthcare delivery. At the heart of this new leadership strategy is a shift away from third-party fee-for-service
systems in favor of a community-based membership model.
Copyright © 2011 WhiteGlove Health, Inc.
- 4. A New Services Delivery Model
The U.S. healthcare delivery system is a very complex, highly
fragmented, chaotic collection of constituents and components
including medical providers, insurance companies, pharmacies,
diagnostic labs, and all of the information that flows (or not)
between the parties. This complexity contributes significantly to
the cost problem as the typical medical care provider requires
five support people for every physician.
WhiteGlove Health, a company that is leading the charge for a
new services delivery model, claims that the core problem in
today’s rising healthcare cost structure is the inefficiencies of the current fee-for-service model. The company
points to a new membership-based model that puts employers in control of their healthcare costs. For an annual
membership fee of $300 per employee/dependent and a fixed fee of $35 per visit, WhiteGlove lowers and caps the
cost for routine medical care for both employer and employee.
WhiteGlove sends nurse practitioners to provide medical care to its members at home, in the office, or anywhere
within their service areas. WhiteGlove’s service is available 365 days a year, from 8 a.m. to 8 p.m. Nurse
practitioners can do everything that a doctor can do when it comes to medical care within WhiteGlove’s scope,
including writing prescriptions. In fact, recent studies focusing on nurse practitioners demonstrate that replacing care
traditionally provided by physicians can be the first step toward significantly bending the cost curve. Projected cost
reductions are estimated to be more than 20 to 35% on average.
WhiteGlove's business model is uniquely suited to self-insured companies because WhiteGlove does not file claims
against their health plan for its visits or the generic Rx medications prescribed on its visits. WhiteGlove’s services
can reduce expensive visits to urgent-care and emergency room facilities for routine medical care and improves
productivity by reducing time spent running around when care is needed.
As the leadership role of the CFO becomes more critical to the future of healthcare reform, cost control will be the
dominant goal. Recognizing the strategic role healthcare cost control can play to the health of the business – not just
employees – it promises to be a driver for fundamental reform.
Whether the new healthcare law succeeds or fails in expanding access to care, it is the CFO’s call for innovation that
may yet deliver greater access, lower costs, and a better healthcare experience for employees and dependents.
Copyright © 2011 WhiteGlove Health, Inc.
- 5. About the Author
Bob Fabbio is President and CEO of WhiteGlove Health. In 1989, Fabbio founded Tivoli Systems and was the catalyst for what became a $12B
Enterprise Systems Management market. In 1996, after a successful IPO, Tivoli was acquired by IBM. He later founded DAZEL Corporation,
which quickly became the acknowledged market leader in Output Management, before being acquired by Hewlett-Packard. Fabbio also co-
founded Ventix Systems, which later merged with Motive Communications and went public. Fabbio spent nearly 6 years in the venture capitalist
industry with Austin Ventures, as a Venture Partner, and with TL Ventures, as a Managing Director. In addition, Fabbio has held senior technical
and executive management positions with Cesura, VIEO, IBM, Prime Computer, Applix, and Kodak. Mr. Fabbio also served as a Rochester
Institute of Technology Board of Trustee member.
WhiteGlove Health is focused on changing healthcare on a national level by lowering the cost of healthcare while improving the consumers’
healthcare experience. As a medical care provider, WhiteGlove offers members access to affordable, high quality medical care at home or work,
365 days a year, 8am to 8pm.
Copyright © 2011 WhiteGlove Health, Inc.