[Paleopsych] Battle Over Benefits

[Steve]

CEOs are trying many initiatives to lower their companies' health care 
costs. But will it be enough?
When Mark Gumz was named president of Olympus America, he decided to take a 
hard look at the company's spiraling health care costs. After discovering 
that the U.S. subsidiary of the Japanese camera company was spending far 
above the national average on health benefits, Gumz spent a year 
spearheading a series of initiatives, including instituting a no-smoking 
policy on the corporate campus, adopting wellness programs and overhauling 
employee benefits.
"Our health care costs were out of control," he told CEOs gathered for a 
recent health care summit held by Chief Executive in partnership with the 
Blue Cross and Blue Shield Association. "So we had a very tough year of 
restructuring the plan and explaining to employees why we were doing it." 
To mitigate potential damage to employee morale, Gumz held a series of town 
hall meetings to communicate the company's position and get as much empl  
oyee backing as possible.
Such tales of drastic revamping efforts typically end with the happy report 
of slashed costs, but four years later health care costs at Olympus America 
have been flat for two years running. Is Gumz disappointed? Hardly. At a 
time when double-digit increases in health care costs are the norm, he 
counts it a victory. "Last year, the average company saw costs climb by 14 
percent," he said. "So we're very pleased to have not had an increase for 
two years straight."
The key question is how many CEOs can tame their companies' health care 
cost explosion? Clearly, the strategies they are currently pursuing can do 
only so much. A growing number of companies, for example, provide wellness 
programs that educate workers about healthier lifestyles and offer 
financial incentives for behavior thought to prevent or effectively manage 
health issues. But employees aren't always receptive to health awareness 
and disease management programs, said John McConnell, CEO of Ohio-based 
Worthington Industries, which offers financial credits to employees who 
participate in those kinds of programs. "In almost all of these plans," he 
noted, "it's hard to drive employees beyond a 20 percent participation 
rate."
Even when participation is high, programs such as smoking cessation and 
weight reduction offer only short-term relief from rising costs. "I would 
challenge whether these wellness and prevention programs truly have had an 
impact," said David Klein, president and CEO of Excellus Blue Cross and 
Blue Shield in Rochester, N.Y. "For the most part, what you see is a shift 
for a few years and then the curve comes right back up."
Other initiatives aim to connect end consumers, or employees, more directly 
with the price of health care to encourage more cost-conscious choices. 
"We're trying to make people true consumers," explained Tom May, CEO of 
NSTAR, an electric and gas utility equipment maker in Boston. "Let's face 
it, if you only pay a $5 to $10 co-pay to see a doctor, you don't really 
think about that purchase."
Toward that end, some companies increase copayments and health-care 
deductibles or adopt consumer-driven health care plans that combine 
high-deductible health insurance policies with health savings accounts or 
health reimbursement accounts that roll over from year to year. Others, 
concerned about the potential impact on employee loyalty, stop short of 
implementing wholesale changes to their benefits structures. "We're looking 
at HSAs and other ways to increase the level of coverage and care that 
we're providing to employees as well as to inject some real economics into 
it," said William Mitchell, CEO of Arrow Electronics in Melville, N.Y. "But 
we've had large debates around the [impact on employee morale] with no real 
results."

Such efforts must walk a fine line: encouraging employees to make wise 
decisions without discouraging them from seeking necessary care, said Scott 
Serota, CEO of Blue Cross and Blue Shield Association in Chicago. "If you 
fund an HSA and tell employees that if they don't spend that $3,000 on 
health care they can carry it forward, they may not do the preventive care 
that they should," he said. "Or if an individual has to pay 30 percent 
because you restructured your benefits, he may choose not to get an MRI 
that he would have otherwise gotten. If it turns out he needed it, he ends 
up in the emergency room and we all pay."
Similarly, efforts to pass on some of the cost of benefits by asking for 
employee contributions can lead to employees opting out of coverage 
altogether. "We have terrible participation," reported John Shalam, CEO of 
Audiovox, whose company switched from carrying 100 percent of medical 
program costs to requiring employees to contribute toward health care 
benefits. At salaries of below $21,000, we have 4 percent participation; 
below $50,000, it's about 7 percent; and above $50,000, it's around 9 
percent. We need to step that up desperately, but we're not sure how to 
handle it."
Ultimately, CEOs by themselves may not be able to do enough to get a grip 
on health care costs. "Most of the solutions from an employer perspective 
are just rearranging the deck chairs," Serota argued. "It's about, 'Instead 
of me paying for health care, I'm going to make my employee or the 
government pay.' But we have to get at the fundamental drivers. We have to 
look at how health care is delivered as well as how we pay for it."
Although touted as the best in the world, America's health care system is 
plagued by inefficiencies and a dearth of quality-of-care information. In 
medical care today, free market rules of competing on efficiency and 
quality simply don't apply, said Steve Martin, CEO of Blue Cross and Blue 
Shield of Nebraska. "When no one manages supply and a new hospital 
specializing in heart care opens, competing facilities simply raise their 
prices to make up the lost revenue," he explained.
Supplier-induced demand is also viewed as a major cost culprit. When 
consumers flock to their physicians demanding the latest acid reflux drug, 
what percentage of the resulting prescriptions reflect need rather than the 
effect of the latest ad campaign? If a new piece of medical equipment comes 
into the community and suddenly the number of scans being prescribed shoots 
up, is the bump attributable to real health issues-or a need to pay off 
the investment?

The other reality is that health care delivery is a local or regional 
phenomenon and in each case the economics are different. The relative 
bargaining power of hospitals and other providers varies. In some markets, 
alliances have given health care providers the clout to dictate prices, 
said Anita Smith, CEO of Capital Blue Cross. "We don't have a lot of 
competition in Harrisburg, Pennsylvania," Smith said. "So providers have 
bought out each other and have networked, and they now have more of a base 
to impose increases."
That means some solutions to the quality-versus-cost issues must be 
regional. "Rather than a one-size-fits-all approach, it involves a 
patchwork quilt-different solutions in Nebraska, in Western Massachusetts 
and in Upstate New York," said Excellus Blue Cross and Blue Shield's Klein, 
who noted that many large companies are ill-equipped to tackle solutions 
from a community-by-community standpoint. "Most companies large enough to 
have the resources to throw at this have, at best, a plant manager in a 
local area who's worried about running a production line or a distribution 
center," he said. "How do you take that person off-line and get them 
engaged in the disintermediation of area hospitals? Companies are not 
structured in the right way to create the power base to affect the types of 
changes we need."
Regional Remedies
Still, encouraging progress has been made in some communities. In 
Rochester, for example, a Community Technology Assessment Advisory Board 
comprised of business and community leaders and health care providers, 
including doctors and hospital representatives, review new medical 
technologies or treatments and make recommendations about when they should 
be introduced and how much capacity is necessary. "During the years this 
has been around, there's never been a situation where the advice was not 
accepted," said Klein, noting that similar systems are emerging in Syracuse 
and Buffalo to limit spiraling costs by avoiding overcapacity. "It's a 
local coalition coming together to say, 'We're not going to overbuild. We 
will have programs to attract enough doctors and nurses and community 
formularies so that we can begin to do volume purchasing.'"

Larger markets where four or more health care delivery systems compete, 
such as New York, Chicago, Atlanta and Dallas, however, will require a more 
information-centric approach. Ideally, an open market would reward 
providers who offer the best quality care in the most efficient manner. 
"But we have lousy cost and quality information today," Klein said, adding 
that data will have to be compiled and disseminated for consumers to make 
more informed decisions.
Given the privacy protection afforded to America's health care consumers 
through the HIPAA Privacy Regulation that went into effect in 2003, that 
could take a while. "North America, the hub of capitalism, has an 
extraordinary challenge," said Sir William Castell, CEO of GE Healthcare, 
noting that the mandates on privacy that apply to providers, plans and 
others involved in U.S. health care hamper information sharing. "We'll be 
looking at efficiency in the treatment of disease at the macro level in 
Europe very shortly. That is something you won't be able to do in North 
America, where the concept of individual privacy mitigates the way we can 
draw upon clinical IT data."
Uncovering Issues
While promising, community-based initiatives and quality and cost data are 
just two pieces of a larger health care puzzle. Myriad other issues must 
also be addressed, and they are beyond the power of individual CEOs. Fueled 
by rampant litigation and breathtaking jury awards, medical malpractice 
insurance premiums have skyrocketed-a cost reflected in rising prices from 
care providers. Concern over litigation also spurs "defensive medicine," or 
physicians whose fear of lawsuits leads to unnecessary tests, and dissuades 
doctors in the more litigious areas of practice from opening offices in 
some markets.

A nationwide epidemic, medical litigation is particularly problematic in 
"judicial hellholes," as the American Tort Reform Association refers to 
cities, counties or judicial districts notorious for awarding plaintiffs 
astronomical sums. The American Medical Association has declared a state of 
emergency for 18 states where few if any controls have been implemented to 
cap jury awards.
Beyond driving costs up, litigation can drive health care providers out of 
a market, reported NSTAR's May. "Tort reform is something that we have to 
go after on a national basis," he asserted. "We can't get obstetric 
gynecologists to set up practice in Massachusetts, because the malpractice 
premium is $200,000. How do you get a kid out of medical school to come up 
with $200,000 to practice delivering babies?"
Business leaders also question the toll that fraud takes on health care 
costs (see sidebar, facing page), and what can be done to cut down on 
abuses. "As a consumer you wonder what effect the fraudulent parts of this 
puzzle wind up costing," noted Harry Gould, CEO of Gould Paper. "A more 
concerted effort to stop that kind of chicanery may help reduce costs, 
which will help all of us."
While virtually all agree that workable solutions are hard to come by, 
consensus is building that addressing inequities in the system may mean 
lobbying for government action. "It's very important for us, as business 
leaders, to have expectations of both the federal government and the state 
government," said William Van Faasen, CEO of Blue Cross and Blue Shield of 
Massachusetts, who notes that under the current system, private companies 
are subsidizing care for the growing population of retired Americans. "We 
can't have Medicare and Medicaid continue to underpay and rely on the 
private commercial market to subsidize their obligations and think we can 
solve this problem."
Frustration over the rapid rise of prescription drug prices also has 
traditionally anti-government intervention CEOs humming a new tune. "The 
pharmaceutical industry has done a good job of saying that prices support 
R&D, but why does the U.S. have to subsidize everyone else?" asked 
Worthington Industries' McConnell, who argued that pharmaceutical companies 
make price concessions to foreign countries on costly drug therapies, but 
continue to charge sky-high prices in the U.S.
Drug companies counter that price concessions are a necessary evil of doing 
business in foreign countries. "The French government negotiates prices and 
will just deny access to the market the same way China denies technology 
companies access to their markets," said William Manning, CEO of Manning & 
Napier Advisors, an investment advisory firm based in Rochester, N.Y.
While conceding that price discrepancies are an important issue, GE's 
Castell argued that America benefits from the less regulated environment it 
offers drug makers. "We don't want yesterday's technology-we want the best 
possible health care," he said. "And because prices in most other areas of 
the world are regulated, the industry has, not surprisingly, moved to North 
America, which has been a real boost to research and development in this 
country."
But with drug costs adding to the health care tab, irritation is on the 
rise. In 2003, American companies footed more than $70 billion in pharmacy 
benefit costs and, following eight years of double-digit increases, saw 
drug bills rise by 9.1 percent-hefty enough to have some CEOs longing for 
public intervention. "Pharmaceuticals will be opening the door for the 
government foot," said McConnell. "And it will come in, because people like 
me who love free markets will be demanding it from my representatives."
Ultimately, no single effort will cure the ailing health care system. It 
will take the combined efforts of leaders in the health care industry and 
the business community, working on local and national levels, to deliver a 
"solution cocktail" that will move companies from simply coping with the 
health care conundrum to finally resolving it.
Collaboration is Key To get more bang for its research buck, GE Healthcare 
is working with insurers to make sure products in development will merit 
reimbursement. Innovation can both address cost issues and transform health 
care, according to Sir William Castell, CEO of GE Healthcare, who talked to 
Chief Executive about shifts in medical research practices.   You have said 
communications with health-care insurers are changing the way GE Healthcare 
handles the clinical trial process. How does that work? Historically, we 
have identified what we feel are the right products to develop and then 
moved onto reimbursement. We're now talking to the insurers in the U.S. in 
advance of FDA trials to see if they feel the products we have under 
development will be useful. So rather than using our own market skills to 
say we think this product has good clinical niche to fulfill, we say, 
"Let's make sure the people who are actually paying for the product will 
see it as a product they will reimburse and therefore endorse." Have 
discussions with insurers changed the way you approach the development of 
diagnostic tools and treatments?  We have certainly changed prioritization 
as a result. There are some products that are much less near the top in 
terms of clinical development as a result of these discussions. I can't say 
we have actually dropped products. I think we are getting to the stage 
where, through discussion, we are just much more focused now on innovation 
that will bring both patient benefit and efficiency to the health care 
system. For example, we have a product in the area of clinical heart 
failure that came out of that partnership deliberation. We had good 
discussion with insurers in the U.S. and are now developing as rapidly as 
possible a product that will adequately differentiate the types of cardiac 
failure and, therefore, better describes the appropriate therapy. That is 
an important development that we think will make significant improvements 
in both the diagnosis and efficiency of health care in chronic cardiac 
failure. Do you feel comfortable with insurers taking a role in determining 
which medical innovations get developed? U.S. legislation has to an extent 
coped with what we call orphan drugs, or therapeutic products that have a 
relatively low incidence within the population. There is no point in us 
developing products that are not felt to be sufficiently effective to 
qualify for reimbursement. I am not aware of any product for which we felt 
there was a real clinical need that we couldn't find reimbursement for or 
acceptance of, so we have broken our way through that barrier.  You 
mentioned that Europe will soon begin looking at the efficacy of health 
care treatments on a macro level. How? And what will be done with the 
information? The U.K. government, working through the Medical Research 
Council and the Wellcome Trust, have established the UK Biobank where 
500,000 citizens are being genotyped and followed for the next 15 years. It 
is also the first major government attempting to digitize health care. For 
the first time we will have a patient community significant enough to look 
at disease development and relate it both to genetics and the environment 
people are living in. It will not happen overnight, but the combination of 
that research work plus the development of electronic medical records will 
allow us to have the mechanism for both capturing and analyzing data about  
 the diseases occurring and the therapies being prescribed. Those will be 
fascinating studies. We may start to see early results within 12 to 14 
years, and we will see it becoming a new way of looking at health care in 
the next 20 to 30 years.  How do you see genetic knowledge or innovations 
in diagnostics or treatments transforming the industry? We see more and 
more articles indicating that if you have a specific gene mutation you are 
more likely to develop certain diseases, or if your genes are switched on 
or off you metabolize [chemicals] differently. So we are seeing the 
importance of genes in the way we process life. That will become a much 
more critical part of how we deal with the complexity of the body. We will 
evolve ways to use that information to create a better quality of life and 
a more cost-effective and safer life because we will be able to better 
select therapies that work, for their efficacy, and to deselect them for 
their likely side effects. Over the next 20 years I think we will see 
society debate how we should use that data and how it should be 
communicated. There is no doubt that genetics can become an extraordinary 
instrument in determining how we get the best quality of life and greater 
efficiency in the provision of medicine. 	

The Fraud Factor Health care fraud is an $85 billion problem. But CEOs can 
help fight it.  Between August 2002 and April 2003, an estimated 5,000 
people reportedly underwent unnecessary surgeries at a California 
outpatient center. Recruited by "surgery coyotes," recent immigrants were 
promised cash payments for receiving unnecessary and invasive medical 
treatment, such as circumcision, removal of sweat glands, and colonoscopy 
procedures. The price tag? An estimated $97 million in fraudulent insurance 
claims. The scam ranks as one of the most egregious, and inhumane, examples 
of insurance fraud. But it's only one of many kinds of abuse contributing 
to the rising costs of health care, says Scott Serota, president and CEO of 
the Blue Cross and Blue Shield Association. "Every day there are 
unnecessary actions taken that end up costing all of us millions of 
dollars," says Serota. "And every dollar taken by some con artist is a 
dollar not available for necessary life-saving treatments, drugs, research 
or emergency services." Fraud typically involves billing for medical 
services that were not provided, misrepresenting services or providing 
unnecessary treatment. But pharmaceutical fraud is also on the rise, with 
drugs being diverted for illegal use or street sales. To combat the 
problem, the Blue Cross and Blue Shield Association recently created the 
"BCBS Anti-Fraud Strike Force," composed of a team of investigators from 11 
of its 41 plans around the country. The team will help facilitate 
investigation of multi-jurisdictional cases, sharing of best practices, and 
faster response to fraud alerts.  Consumers, too, play a role in fighting 
fraud. In 2003, nearly 3,200 consumer reports of suspected fraud that were 
received through Blue Plan consumer hot lines resulted in investigations. 
In an effort to expand on that success, the company recently launched a 
national hot line number and a web site where consumers can report 
concerns.  The bad news is that fraud is an $85 billion problem today, says 
Serota. "The good news is there are things we can do," he suggests. "As 
CEOs we can start by creating a corporate culture that won't tolerate 
fraud."