5 Things Manufacturers Must Do to Prepare for a Better Tomorrow
As business leaders across all industries search for savings to make up for the weeks COVID-19 kept them closed, manufacturers should be no exception. Though many saw upticks in demand and helped make life-saving products that played an invaluable role in mitigating the effects of the pandemic, this situation shows why all organizations should be preparing for the worst of times during the best of times.
Few people, manufacturers included, realize that improving health benefits while reducing healthcare spending is one of the best ways to do so. Far fewer know they can do that by following just five steps.
Those steps — collectively called the LOCAL framework by Dave Chase, CEO and co-founder of Health Rosetta, an organization that aims to accelerate the adoption of simple, practical, nonpartisan fixes to the U.S. healthcare system — are:
1. Learn to be liberated from the status quo.
By switching from a traditional, carrier-controlled insurance plan to a self-insured model that is independently administered, manufacturers can cut out the middleman and allow them to pay directly for employees’ medical claims. By extension, they can rid themselves of the exorbitant fees big-box carriers charge and see savings between 20% and 30% of the cost of a PPO, or around $2,800 per employee.
2. Optimize health plan infrastructure.
In order for this approach to succeed, the next step is to find a benefits advisor who is willing to disclose commissions and is knowledgeable about the necessary tools, such as stop-loss insurance and a carrier-independent third-party administrator (TPA). Assembling and understanding these tools might seem a bit boring; however, it’s an essential part of locking in maximum savings.
3. Carve out PBM.
One area that significantly impacts healthcare spending is prescriptions. Manufacturers should make sure it’s clear that they own their claims data in the contract with a pharmacy benefits manager (PBM) and that they have the right to use that data to make informed and cost-friendly decisions for their beneficiaries.
4. Add value-based primary care.
In the standard fee-for-service system, every service and procedure has a charge, primary care appointments are usually very short, and often patients leave with referrals to unnecessary, costly services such as scans and specialists. In contrast, value-based primary careproviders typically charge a monthly, quarterly or annual fee that covers all or most primary care services. Because they aren’t restricted by fee-for-service bureaucracy, they are typically able to provide higher-quality care. High-quality care from the beginning results in less follow-up visits and healthier patients overall, and fewer appointments or procedures means less spending down the line.
5. Leave behind value-extracting PPO networks.
PPO networks arbitrarily charge three to five times what Medicare pays — Medicare takes actual market costs and market variance into account — and also tack on monthly fees per member. These unnecessary costs can be cut by direct contracting with providers who are willing to accept a percentage of Medicare that’s less than what the PPO networks are paying them. Through this reference-based pricing process, employees get the best care for the best price and are usually given incentives to do so through things like waived copays.
Pacific Steel & Recycling is a perfect example of how this approach works. The company’s CEO, Jeff Millhollin, and CFO Tim Culliton (retired), decided to go self-insured (step one) years ago, and more recently unlocked additional savings by successfully crossing step two off their lists.
With a new advisor, they realized that with their old reference-based pricing approach — where they were paying 160% for everything — they were wildly overpaying for certain procedures/services, and not offering providers enough for others. Hence why they were struggling to create more direct contracts.
Today, not only do their employees enjoy some of the best benefits in the country, they have more than 5,000 safe harbor agreements with providers and five direct contracts with health systems/hospitals. Millhollin and Culliton reduced their annual spending by a staggering $5 million.
These steps might seem daunting at first, and manufacturers might not see why doing so is essential today, but the results this process can provide — evidenced by Pacific Steel & Recycling’s success — demonstrate why doing so will be well worth the effort.
Scott Haas is an employee benefits advisor who builds plans using the principles of Health Rosetta. He is the senior vice president of USI Insurance Services.
Photo credit: iStock.com/ Duncan_Andison