“At a time when virtually every municipality is finding ways to cut back health benefits in order to balance its budget, the city of Kirkland, WA, decided to create a moonshot goal–slay the healthcare cost beast while simultaneously improving the health of the city employees.”
Best Way To Slash Healthcare Costs? Improve Health Benefits
By David Chase
At a time when virtually every municipality is finding ways to cut back health benefits in order to balance its budget, the city of Kirkland, WA, decided to create a moonshot goal–slay the healthcare cost beast while simultaneously improving the health of the city employees. As has been demonstrated time and again, a value-based primary care model is foundational to a proper healthcare delivery system. This is a stark contrast to the common situation where primary care is a loss leader, making primary care unattractive and leading to shortages of primary care in some communities.
The so-called “death of primary care” has actually been more of a resurrection. It’s understandable that people think primary care is dying when the flawed fee-for-service reimbursement scheme has turned primary care into milk in the back of the store. That is, the reason health systems have gobbled up primary care docs is they use them as loss-leading referral machines for high-margin procedures, tests and consultations. The result is predictable–purchasers of healthcare are getting milked.
Mayors and Cities Can Revolutionize Healthcare
Kirkland is demonstrating what Bruce Katz and Jennifer Bradley wrote about in “The Metropolitan Revolution: How Cities and Metros Are Fixing Our Broken Politics and Fragile Economy.” As Katz shared in his NPR Fresh Air interview and speech in the Netherlands, mayors and local governments are doing what it appears D.C. “Preservatives” are unwilling to do. That is, rather than kowtowing to incumbent businesses trying to protect the status quo, they can be good stewards of taxpayer dollars. The leaders in many communities recognize that the horrible status quo health benefits situation has created the single greatest immediate threat to the country. It’s a key reason that business coalitions are fighting back and revolutionizing how health benefits are purchased.
Though it’s no surprise to me in light of what I’ve seen with other organizations that adopt elements of the Health Rosetta, it is surprisingly straightforward to slash healthcare costs and improve health benefits.
[Disclosure: As I’ve disclosed many times, the Health Rosetta is a non-commercial open-source project that provides a reference model for how purchasers of healthcare should procure health services. In my role as managing partner of Healthfundr, a seed stage venture fund, the Health Rosetta is the foundation of our investment thesis.]
Less than a year into their Healthy Kirkland Initiative, they are on the path to what an employer in Florida found. That is, while they greatly improved health benefits, they have been able to spend 50% less per capita on health benefits. What will be of particular interest to municipal leaders is this private-sector driven effort led to high school graduation rates that more than doubled from 45% to nearly 100% and crime rates that dropped 62%. That is what’s possible when dollars otherwise squandered on healthcare can be invested back into the community. It’s increasingly understood that there has been a catastrophic misalignment of population health spending that must be fixed.
The city of Kirkland tasked its benefits consultant, Keith Robertson of Alliant, to develop a program that would achieve its moonshot goal. This included procuring the services of Vera Whole Health, which is one of the next-generation primary care models exploding around the country. The following is a summary of results after just six months:
Vera has achieved 70% engagement in six months—where engagement means at least a 30+ minute visit with a provider, not just a unique encounter for a stuffy nose. This workplace program stands in stark contrast to many workplace programs where engagement rates will be around 2% for items such as so-called “transparency solutions.”
The city claims that Vera has already bent its cost trend by 2.5% in contrast to continued hyperinflation for most employers.
The city also indicates that its cost per employee per month is $211.45 less than the previous year—including all the costs to implement the program (Vera build, etc.).
Naturally, these are early results and things could change. However, as other value-based primary care models have demonstrated, the results can be breathtaking and sustained, unlike many so-called fixes. In Vera Whole Health’s case, they have been operating their clinic longer with Seattle Children’s Hospital (clinic for adult employees) with the following results:
Seattle Children’s saved over $3.5 million in 28 months (net of all costs) for a 57% ROI, which doesn’t include increased productivity
Patient satisfaction is 4.8 on a 5.0 scale
Like most value-based primary care, there is a particular emphasis put on high cost chronic disease members with an active health coaching approach. Seattle Children’s diabetics treated at Vera cost $920 less per member per year versus past years. 47.5% of those Vera-engaged diabetics were at high risk.
Vera’s CEO, Ryan Schmid, emphasized to me the value of a proper primary care relationship. Vera’s focus is on operationalizing the “people listen to their doctor” dynamic, or what I call the “Negaclaim”–what amounts to a self-denial of a claim as the individual properly understands the risks associated with invasive procedures and medications. When an individual has the support and insights of their health coach and doctor, people deemed hopeless by the traditional healthcare delivery system achieve impressive outcomes.
Tackling Healthcare’s Most Vexing Problem
While a proper primary care model is foundational to realizing the full value from health benefits spending, there is low-hanging fruit to solving healthcare’s most vexing problem: pricing failure. One would think it would it would be large employers who’d be flexing their buying power to solve this problem, but most have been remarkably passive in light of health benefits being their second biggest cost after wages. Instead, small employers are showing large companies how to solve healthcare’s hyperinflation problem. For example, this small manufacturer in Oklahoma is spending 30% less per capita on health benefits while providing great benefits. They did it with a combination of value-based primary care and a transparent medical network. Not only could they deliver comprehensive benefits, it has allowed them to more than double the investment in R&D compared to like organizations.
Perhaps the most interesting facet of the Oklahoma story is how the transparent medical network movement has triggered the largest non-profit health system to offer fully transparent prices. While transparent medical networks are being set up in a variety of markets, they work particularly well when there are strong, independent ambulatory surgery centers or when a large health system such as Ascension isn’t the market-share leader. Like many markets outside of healthcare, the player with the second- or third-largest market share uses a customer-friendly approach to expand its market footprint.
Vera has partnered with a leading transparent medical network, the Zero Card, that underpinned the success in Oklahoma. They’ve proven that whether an employer is large or small or whether it’s a public or private entity, everyone wants a fair deal that works for all parties. One of the more surprising aspects of transparent medical networks is they aren’t limited to surgical procedures. Dr. Stan Schwartz is the chief scientific officer for the Zero Card and has shared how they are partnering with a leading provider for managing diabetes. Like with surgical procedures, the provider is excited to offer a transparent, bundled price for annual chronic disease management for diabetes (tiered for severity level). Another provider is providing a bundled price for an entire pregnancy and delivery. These new areas augment the existing transparent medical network for surgeries, imaging, lab testing and mail-order pharmacy.
Vera has a particularly strong presence with municipalities, so you can be assured that other cities and counties are paying attention. This has fueled tremendous growth for Vera. The Seattle metropolitan area is particularly fertile ground, as it has some of the most forward-looking employers such as Starbucks and Boeing in addition to progressive providers who are more than happy to see insurance companies disintermediated. In addition to the employers already mentioned, Vera works with organizations such as the Gates Foundation, Trident Seafoods, Virginia Mason and a bunch of unannounced customers. With a minimum of $1,000 per employer per year of pricing failure, it’s not hard to see how there has been strong adoption of transparent medical networks.
Value-based primary care is a linchpin to eliminating pricing failure as it is a trusted resource for patients. They are able to explain what may seem like a paradox: that the highest quality providers for services such as surgery are often priced at the lowest cost. Practice and specialization yields tremendous savings.
It might be time to call or write your local city officials and see if they’ll follow Kirkland’s lead.
This article also appeared on Forbes
