Insights / Quality Improvement / Uncategorized

When the Health Plan World Changes, So Too Must the Delivery World

Dave Chase

Proposals to combat surprise medical bills[1]. An executive order calling for greater transparency[2]. Debate about what “Medicare For All” could mean for both employees and employers[3].

People have grunted and groaned about health care costs for years, but the public appears to have finally reached their breaking point. Individuals aren’t afraid to speak out[4] about prices for medical services and prescriptions that are inflated for no good reason — we often pay two to three times other countries for the same services with the same or worse outcomes while inflicting severe financial harm for the working and middle class. Their rallying cry has caught the attention of the Congress and the current administration.

However, the public knows that if it wants higher-quality, lower-cost care now, it can’t wait on Washington, D.C. So, many are turning to the individuals from whom they receive health care coverage, their employers, and demanding they do better.

The majority of employers don’t know what to tell them – family premiums are already costing them nearly $20,000[5] per employee, and with their health benefits broker telling them year after year that health care costs are going up by 5%-20%, they feel their hands are tied and shift some of that spend back to employees via higher deductibles. At the end of the day, status quo health plans are keeping employers from running successful businesses[6].

Some employers have already made significant progress. These individuals, and the transparent benefits advisors behind them, are leading a health care revolution – one that hospitals/providers can no longer afford to ignore.

Historically, hospitals have been able to make secretive deals with multiple insurers, varying arrangements that have contributed to our opaque, confusing and expensive health care system. Hospitals have been able to set vastly different prices ­– prices that not only differ significantly between other hospitals, but also differ by hundreds, if not thousands for the same procedure performed by the same physician for otherwise identical patients on different plans.

But that’s not the only problem with how most hospitals deliver care today. Another major part of the problem is that many of the procedures patients undergo aren’t actually necessary. Musculoskeletal (MSK) procedures like knee surgeries and spinal fusions account for a large portion of health care spending – $332 billion between 2012-2014[7] – and most aren’t even a patient’s only path to effective treatment[8].

Patients either don’t realize these drastic cost differences exist, or they know about them, but still agree to even unproven procedures under the assumption that regardless of cost, their insurance carrier is picking up the bill. Sadly, most of them are blissfully unaware of what goes on behind the scenes, and continue to make health care decisions based on what hospitals and doctors their insurance company deems “valuable” and worthy of inclusion in their network. They don’t realize that at the end of the day, they are the ones paying for care – either out-of-pocket if insurance doesn’t cover everything or over the course of time in the form of higher premiums. And even worse, most don’t have any idea whether the providers they visit and pay are worth every penny – high cost hospitals aren’t necessarily high-quality hospitals.

It’s hard for a single individual to take on an entire system, but employers have enough clout to bring about change. They’re switching from fully-insured plans purchased from old-line insurance carriers to self-insured plans where they have more of a say in what kind of care their employees receive since they’re the ones paying for it. Self-insured employers have greater flexibility, better financial control, and improved methods for decision-making with self-insured plans – if they take full advantage of this freedom.

Even when self-insured, employers must avoid the mistake of designing self-insured plans that mimic the old health plans where everything was controlled top to bottom by traditional carriers. Self-insured plans can still be expensive and not consumer-friendly, especially if they rely on the same old approaches that have resulted in businesses and individuals having to file for bankruptcy.

The U.S. remains the world’s undisputed leader in medical bill-driven bankruptcy, and even though they have health insurance, it’s predicted that 10 million Americans[9] will still receive health care bills they can’t afford. It’s not like these high prices are justified, either: U.S. health plans are exceptionally expensive, but still produce the worst health outcomes amongst developed economies.

Fortunately, employers are waking up to this miserable reality, fighting back, and are already seeing remarkable results by combining value-based primary care[10], transparent open networks[11] (the successor to PPOs), and transparent pharmacy benefits[12]. In every cover of the country, in both large and small organizations and in both rural and urban settings, we are seeing self-insured health plans that have reduced costs by 20%-40% ­– and in some instances even more – not by cost-shifting or withholding care, but by delivering superior patient experiences.

As the health plan world changes, the delivery world must change along with it, and if hospitals/providers do not find new ways to do business -– namely interacting and negotiating with new entrants to offer cost-effective services for employer plans — they risk being left behind.

A few years ago, my TEDx talk, Health Care Stole the American Dream. Here’s How We Take it Back[13], highlighted an employer who is spending less than half on health care of a typical employer, despite also having the best health benefits package in the country and serving a workforce with a significant disease burden in the most expensive health care market in America – Orlando, Florida. They have accomplished this for over 20 years, and they aren’t the only ones doing so.

Another impressive employer is Pacific Steel & Recycling – a Montana-based manufacturer with 700 employees in 9 states and 42 locations. Four years ago, Pacific Steel was spending over $8 million on health benefits. Then, given their tight-margin business, they decided they could no longer submit to the tyranny of the low expectations that pervade the health benefits arena, where the best you can hope for is a “less bad” health premium increase.

So-called “medical trend” – a farcical concept designed to facilitate industry profits and which was debunked in Health Care Costs Are Flat Despite What You Have Heard (PDF)[14] – has been 7.5% since Pacific Steel made this decision. In other words, if they would have kept buying into the common trap of “medical trend,” they would have closed out 2018 spending over $10.5 million on health benefits. But since they didn’t, they closed out 2018 spending approximately $3.5 million while simultaneously reducing employees’ out-of-pocket costs.

To do this, Pacific Steel bypassed its old PPO network and used reference-based pricing as a bridge to transparent open networks. Pacific Steel also bypassed the rebate and spread pricing games that PBMs have become infamous for, and instead opted for transparent pharmacy benefits. Pacific Steel also engaged health care provider organizations in direct contracts, and to date, they’ve racked up more than 4,000 direct contracts.

As successes like these become more well-known and widespread, hospitals and provider organizations will have to think seriously about how to maintain their competitive edge. The best way for them to do so will be to work with the self-insured organizations choosing to buck the status quo, rather than resisting them. Their future success will depend on them contracting with different players for their services, either employers themselves or the transparent open network service providers acting on their behalf. And their future success will also depend on them contracting with a third-party administrator to get their services on employers’ health benefits plan.

One might ask, why would a provider organization take less money for a service than they are currently charging? It’s simple: Every day, traditional carriers make it more onerous and time-consuming for clinicians to receive payment, and as we’ve seen time and again in the news cycle of late, traditional carriers are also expecting extremely large sums to be picked up by patients.

The vast majority of this income is uncollectible. The aforementioned 4,000 direct contracts arranged by Pacific Steel are simple – typically 1-2 pages – and deliver prompt payment to the provider. They also waive employee cost-sharing, so individuals aren’t met with surprise medical bills that increase their odds of having to file for bankruptcy. In other words, new approaches to health plan design are capable of creating a polar-opposite scenario compared to what typically takes place today.

Substantial change is happening on the employer/employee health benefits front, and therefore substantial change is coming or hospitals/providers. This is the canary in the coal mine – the beginning of a major process shift – and it will pay for providers to learn how to get ahead.

Dave Chase is co-founder of Health Rosetta, which aims to accelerate the adoption of simple, practical, non-partisan fixes to our health care system. He is also the author of “The CEO’s Guide to Restoring the American Dream.” (Health Rosetta Media, September 2017).


  1. “2018 Employer Health Benefits Survey – Summary of Findings.” The Henry J. Kaiser Family Foundation. March 18, 2019. Accessed July 23, 2019.
  2. Andrews, Michelle. “Latest News On Bill Of The Month.” KHN. Accessed July 23, 2019.
  3. Bluth, Rachel. “Sen. Alexander Details His Plan To Fix Surprise Medical Bills.” Kaiser Health News. June 20, 2019. Accessed July 23, 2019.
  4. TEDX: Healthcare Stole the American Dream – Here’s How We Take It Back. By Dave Chase. Sun Valley, ID, July 23, 2019.
  5. Galewitz, Phil. “Why Some CEOs Figure ‘Medicare For All’ Is Good For Business.” Kaiser Health News. June 07, 2019. Accessed July 23, 2019.
  6. Heid, Markham. “Many People Who Get Knee Surgery Don’t Need It.” Vice. April 26, 2018. Accessed July 23, 2019.
  7. “1A:Make America Make Again: Manufacturing In The U.S.A.- Lisa Hirsch CEO and President of Accurate Box Co.” Interview by Joshua Johnson. WAMU. January 27, 2017. Accessed July 23, 2019.
  8. Lovelace, Berkeley, Jr., and Ashley Turner. “Trump Issues Executive Order Increasing Transparency in Hospital Prices, Doctor Fees.” CNBC. June 24, 2019. Accessed July 23, 2019.
  9. Mangan, Dan. “Biggest Cause of Personal Bankruptcies? Medical Bills.” CNBC. July 24, 2013. Accessed July 23, 2019.
  10. “New Data on Musculoskeletal Disease Highlight Its Position as Major Contributor to Health Care Costs.” PT in Motion. January 23, 2018. Accessed July 23, 2019.
  11. Pinder, Jeanne. “Health Care Costs Are Flat Despite What You Have Heard.” In The Opioid Crisis Wake-up Call, 42-51.
  12. “Transparent Open Networks.” Health Rosetta. Accessed July 23, 2019.
  13. “Transparent Pharmacy Benefits.” Health Rosetta. Accessed July 23, 2019.
  14. “Value-based Primary Care.” Health Rosetta. Accessed July 23, 2019.

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