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White paper breaking the cost trend6 5-11

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White paper breaking the cost trend6 5-11

  1. 1. INDUSTRY INSIGHTSBreaking the Cost TrendWhy CFOs Are Turning to Healthcare Services Innovation to Improve the Bottom-LineT 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 tolead to sustainable increases in the long-term cost to businesses. Moreover, the law further solidifies a shift inresponsibility from Human Resources to the ChiefFinancial Officer. Even before March 2010, the role ofthe CFO in managing healthcare costs was already centralto business strategy. Now that reform has been thrustupon us, controlling costs requires more than justnegotiating new rates with a benefits broker/consultant.Controlling costs needs to become a strategic directionrequiring a fundamentally new approach to servicesdelivery, one that breaks the healthcare cost trend,making certain that employees not only receive qualitycare, but that the burden on businesses is markedlyreduced.Ironically, the very law that fails to deliver cost-reduction has become a catalyst for the evolution of servicesdelivery, and the CFO reluctantly, or deliberately, will lead the way.The Leadership ShiftFor employers, healthcare reform is no longer about compliance. Rather, a new level of coordination and leadershipis 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. 2. strategic decision to invest in new innovative approaches to break their healthcare cost trend while improvingemployee satisfaction.Ultimately, the relationships that define the delivery of healthcare and insurance are radically changing. Hospitals arelosing their primary role as service providers. Reform ischanging the way government, employers and insurersaddress payments. Nurse practitioners are becomingincreasingly important in the supply chain of healthcaredelivery. Office visits with physicians are no longer the onlyoption for medical care. As a result, business leaders are nowrequired to take on an increasing role in reducing theirorganizations cost and improving the overall health of their employees and dependents. A critical decision in thisprocess is the access to care and its fundamental cost to the business and the employees. Healthcare is no longersimply an employee benefit, and CFOs are forced to drive fundamentally different strategies aimed at breaking theirhealthcare cost trend.According to a recent survey of CFOs by Deloitte Consulting in January 2011, CFOs expect health reform toincrease their costs, with “more than 90% expecting benefit cost per employee to rise and 50% expecting the qualityand/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 essentialcoverage, employers will be fined $2,000 per employee. How “minimum coverage” is defined is yet to beunderstood with the most significant cost curve being compliance. Most agree that the new compliance rules willrequire 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 tohealthcare reform, simply redesigning the corporate health plan to minimize utilization or shift more cost toemployees will not work. In fact, history has shown that it does not work. Over the last five years, employers andemployers have absorbed double-digit increases, according to Kaiser. Companies that rely on part-time workersmay see costs increase as much as 30% to 50%. Historically, the healthcare cost trend has continued to rise bydouble-digits over the last five years. Insurance networks are inefficient as the fee-for-service model drives the useof 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 andleadership. Given that the cost of the underlying healthcare delivery system dramatically impacts the businessesexpense, 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. 3. Pressure on the Cost TrendIn an October 2010 survey by Grant Thornton LLP, 30 percent of CFOs said they were planning to “reduce healthcare 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 ofall U.S. companies self-insure including smaller and mid-size firms. According to a study by PricewaterhouseCoopers, employers with fewer than 1,000 employees that self-insure have grown from 29% in 2008 to 48% in2010. However, whether self-insured or not, employers have no control of the inefficiencies and cost of theunderlying 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 WellPointare all introducing “limited-network” plans to tackle rising costs. Aetnas 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 carecould suffer as more and more employees lose access to personalized care. The 40% tax is on annual premiumsexceeding $10,200 for individuals or $27,500 for families. According to a study by Towers Watson, “more than60% 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 easieraccess to healthcare, it really only increases costs. Beyond the cost of setting up and running an on-site clinic, itincreases access to a healthcare system that generates variable expense claims and thus generates more claimsexpense.As CFOs wrestle with rising costs, more and more management teams are focused on the cost trend – the marginalrate of increase in healthcare costs to employers over time. While there has been much debate over current reformsand 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 paradigmshift in healthcare service must occur. Rather than focus on insurance reform, best-in-class CFOs are focused onhealthcare delivery. At the heart of this new leadership strategy is a shift away from third-party fee-for-servicesystems in favor of a community-based membership model. Copyright © 2011 WhiteGlove Health, Inc.
  4. 4. A New Services Delivery ModelThe U.S. healthcare delivery system is a very complex, highlyfragmented, chaotic collection of constituents and componentsincluding medical providers, insurance companies, pharmacies,diagnostic labs, and all of the information that flows (or not)between the parties. This complexity contributes significantly tothe cost problem as the typical medical care provider requiresfive support people for every physician.WhiteGlove Health, a company that is leading the charge for anew services delivery model, claims that the core problem intoday’s rising healthcare cost structure is the inefficiencies of the current fee-for-service model. The companypoints to a new membership-based model that puts employers in control of their healthcare costs. For an annualmembership fee of $300 per employee/dependent and a fixed fee of $35 per visit, WhiteGlove lowers and caps thecost 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 anywherewithin their service areas. WhiteGlove’s service is available 365 days a year, from 8 a.m. to 8 p.m. Nursepractitioners 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 caretraditionally provided by physicians can be the first step toward significantly bending the cost curve. Projected costreductions are estimated to be more than 20 to 35% on average.WhiteGloves business model is uniquely suited to self-insured companies because WhiteGlove does not file claimsagainst their health plan for its visits or the generic Rx medications prescribed on its visits. WhiteGlove’s servicescan reduce expensive visits to urgent-care and emergency room facilities for routine medical care and improvesproductivity 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 thedominant goal. Recognizing the strategic role healthcare cost control can play to the health of the business – not justemployees – 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 thatmay yet deliver greater access, lower costs, and a better healthcare experience for employees and dependents. Copyright © 2011 WhiteGlove Health, Inc.
  5. 5. About the AuthorBob Fabbio is President and CEO of WhiteGlove Health. In 1989, Fabbio founded Tivoli Systems and was the catalyst for what became a $12BEnterprise 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 capitalistindustry with Austin Ventures, as a Venture Partner, and with TL Ventures, as a Managing Director. In addition, Fabbio has held senior technicaland executive management positions with Cesura, VIEO, IBM, Prime Computer, Applix, and Kodak. Mr. Fabbio also served as a RochesterInstitute 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.