U.S. employers continue to be challenged by both the cost — still trending above the rate of general inflation — and the performance of their health benefit programs. With cost projections indicating that cost concern won’t be going away anytime soon, they continue to search for new and better ways to manage cost and value through benefit delivery and workforce health improvement.


Randall K. Abbott 

Randall K. Abbott

Senior Strategist, Health and Benefits

Sarah Oliver 

Sarah Oliver

Senior Consultant and National Health Care Delivery Leader, Health and Benefits

Jeff Levin-Scherz 

Jeff Levin-Scherz, M.D.

Senior Consultant, Health and Benefits

Standing out from the crowd is a small group of employers that are gaining significant competitive advantage by creating and leveraging best practices, especially superior network and provider contracting strategies, to control costs and improve workforce health.

Our research shows that most employers expect to reevaluate their health and pharmacy benefit strategy in the next few years. Nearly as many expect to reevaluate their vendor and network strategy, and over 70% identify reimbursement methodologies based on cost, quality, improved efficiency and better health outcomes as an important criterion in selecting their health plan vendor partners — second only to competitive price discounts. Key strategies companies are adopting include contracting with their health plan for services at centers of excellence (COEs); implementing high-performance networks; and contracting directly with providers for services through COEs, accountable care organizations (ACOs) and Patient-Centered Medical Homes (PCMH). There is also growing interest in adding value-based designs to medical plans in the next few years.

In addition, nearly half of employers offer telemedicine services, up from 28% in 2013; nearly 90% could offer them by 2018. More and more employers are incentivizing employees to use telemedicine — with lower copayments or other out-of-pocket charges.

Amid this very dynamic period of rapid change for health care in the U.S., value-based contracting, value-based design, technology and new delivery models such as ACOs are creating new opportunities for employers and the need to make new decisions for their health plans. In this discussion, Willis Towers Watson health care experts analyze the current impact of these approaches on employer-provided health care and, as they evolve, on the future of health care in the U.S.

Abbott: What’s the difference between value-based design and value-based contracting? The two often get confused.

Levin-Scherz: Value-based design describes member benefit, and value-based contracting describes how providers are reimbursed.

Value-based design charges members lower out-of-pocket costs for services that have proven to be valuable to their long-term health. For instance, health plans commonly offer full coverage for preventive care because it is considered to be of substantially higher value than other services and, therefore, is covered more generously.

Value-based contracting is a health plan reimbursement approach that pays health care providers based on the value they deliver to patients under their care, rather than the volume of services they deliver. Value is increasingly defined as the quality of the service and the results, or outcome, actually achieved. For instance, providers who have lower surgical complication rates might get higher reimbursements because their outcomes are better.

Oliver: I would also add to the definition of value-based contracting the importance of sophisticated technology infrastructure providers’ or health systems’ need to genuinely improve care for their patients, and to align incentives for adding value from the perspective of all key stakeholders: providers and health systems, the patients and the payers.

Abbott: Do you see plans implementing value-based design in areas beyond preventive care or encouraging generic drugs? For instance, are we starting to see it applied to centers of excellence or other treatment settings or procedures?

Oliver: There is growing interest in expanding value-based design to new areas, in particular, to centers of excellence. Employers who are interested in COEs are increasingly encouraging employees to take advantage of higher-quality, lower-cost centers for certain procedures, for example, hip replacement. These employers are getting member attention by waiving the deductible or offering a procedure at a COE with very low coinsurance after deductibles — even if they’re in a high-deductible health plan.
There is growing interest in expanding value-based design to new areas, in particular, to centers of excellence.

Abbott: Interestingly, we see that too with our clients, yet in our recent survey, far fewer employers than we expected said they have adopted value-based designs. Why is that?

Levin-Scherz: Frankly, every employer I know wants to buy higher-value care for members with their health care dollar, whether that’s higher quality, lower cost or, ideally, a combination of both. Yet, many may not recognize that value-based design has been already built into their plan, including encouraging certain medications, offering preventive benefits mandated by the Affordable Care Act (ACA) or encouraging certain treatment settings, facilities or providers, such as a center of excellence.

Abbott: Sarah, you mentioned earlier the importance of technology in being able to implement value-based contracting. Is telemedicine an example of how technology is being applied in the employer plan space now?

Oliver: Yes, I think telemedicine is a perfect example of how technology has really evolved quickly of late. Our research indicates that over 80% of employers will be offering some sort of telemedicine in the next few years. Telemedicine has really gained traction because it’s a convenient way to deliver access to care to employees and their families who may otherwise either not seek needed care or seek it at the wrong place of service.

For example, telemedicine can help reduce expensive emergency room or urgent care use for minor ailments, like a pink eye infection or common cold. Being able to deliver a telemedicine solution reduces some of the barriers to access for these minor ailments and provides a convenient way to take care of them efficiently, conveniently and cost effectively.

Abbott: Jeff, even though we are seeing wide interest in telemedicine and many employers offering it, utilization by employees is still fairly low. Do you have any guidance for employers that are looking to really encourage employees to use it?

Levin-Scherz: For employers, telemedicine offers an enormous opportunity to improve medical care — both acute and chronic — and lower cost. It also offers significant benefits for employees. For instance, telemedicine actually offers a really good opportunity to get treatment immediately and conveniently for relatively minor ailments, such as uncomplicated urinary tract infections, common in young women. Increasingly, technology may allow clinicians to see rashes or other physical signs via a smart phone camera, and vital signs can be checked via inexpensive devices that plug into smartphones. This could make many face-to-face office visits unnecessary.

However, it’s not surprising that initial use of telemedicine by patients is somewhat low. For starters, people often don’t think about their access to the technology at the moment they need it. They might find out their plan offers telemedicine during annual open enrollment, or they might receive a periodic postcard or reminder magnets to put on their refrigerator, but at the moment they need it, they don’t think of it.

To put telemedicine on employee radar and increase its likelihood of getting used, employers need to educate employees about its benefits and provide incentives to pre-register, for instance, so they don’t have that obstacle when they actually need care.

As more people use telemedicine, social networks should help market it as employees tweet about their good experiences on Twitter, or ”like” the service on Facebook. Other employees will be much more likely to give it a try if they hear their friends or colleagues found it helpful or convenient, or less expensive. It is going to take some time to reach the inflection point where telemedicine becomes part of the way people expect to receive medical care. But I do think it is coming.

Abbott: Is telemedicine just the beginning? How do you see it evolving?

Levin-Scherz: Eventually telemedicine will enable the patients to control the hours that care is available to them, which is now controlled by physicians and their offices. That transformation will be fundamentally empowering to individuals, providing many more opportunities for me to control my own care.

For instance, a diabetic will be able to use adhesive strips to continually monitor his blood sugar and transmit readings to a center via cellphone, where they can be sorted through an electronic algorithm. People whose blood sugar is not under good control can be given prompts about what they can do to improve that, and with their permission, can be contacted by nurses or diabetes educators to help them. This will allow dramatically more individualized and customized medical care and will really put patients in charge.

Oliver: We will also see the impact of telemedicine on the way companies help patients make decisions about their care. Historically, a patient received information through phone interaction with a customer service representative. With improvement and enhancements in technology, patients will be able to use a smartphone to access more real-time information about the cost of a specific procedure, and the quality outcomes and volume of a particular physician. Evolving technology for decision support may not change their ultimate need to have an in-person visit, but it will enable them to do a lot of upfront investigation and research.

Abbott: In our recent health care survey, 62% of the responding employers said they would be using centers of excellence by 2018. As employers move toward encouraging — or requiring — the use of these higher-value providers of care, are there some things we would encourage as they implement these programs and communicate their benefits?

Oliver: COEs are one really good way for employers to dip their toes in the water on the spectrum of new health care delivery solutions. First, I would ask any interested employer to examine its benefit structure. What elements of that structure are going to help members understand that there is a higher-quality, lower-cost option available and understand what’s in it for them? It’s important to have some sort of financial incentive to get their attention, and I can’t say enough about the need to communicate the value of these services.

When a health need arises, employees have to remember they have a COE program in place for that particular health care need. They have to think: “I should be using that; I’ll get better outcomes and reduce my share of costs at the same time.” To achieve that response, employers need a broad and holistic communication campaign that includes testimonials of people that have had a good experience with the program and have actually achieved positive results.

In evaluating either a health plan solution or a third-party vendor solution, one of the first criteria to understand is not just the level of access but also the ease of access to those centers.

In addition, employers need to consider the level of travel associated with any types of centers of excellence. Any long-distance travel required could negatively impact employees using the services because it may not be as convenient. So, in evaluating either a health plan solution or a third-party vendor solution, one of the first criteria to understand is not just the level of access but also the ease of access to those centers.

Finally, there is aftercare integration. The COE program needs to ensure that once the procedure has occurred, the appropriate integration occurs within the system with either the primary care physician or other physicians in the network. For instance, a patient may need post-procedure physical therapy or other aftercare. You need to guard against the patient falling through the cracks, which could adversely affect health outcomes and lead to less productivity, worse health and higher costs.

Levin-Scherz: Also, it seems a given, but the quality of centers of excellence really matters, not just cost. And the quality can vary center to center. We’ve seen data, for instance, on cardiac centers of excellence that show very substantial mortality differences. COEs are most suitable for elective and relatively high-cost services, where there is good evidence of variation in quality at one center versus another.

The best COEs offer not just better quality but also fewer complications. Follow-up care that prevents complications and readmission are more important than having inherently lower costs right from the very beginning. That’s how they are able to offer lower unit prices and overall cost.

The other thing you notice about the best COEs is the discretion they use about who actually gets these procedures in the first place. For instance, one national center of excellence for orthopedics and cardiology reports that about 15% of people who travel there to have a procedure leave without it when their evaluation determines the procedure wouldn’t improve a patient’s condition.

Many people are recommended to have low-value surgeries that are unlikely to benefit them. That’s especially true for low-back surgeries. Really good centers of excellence not only have lower complication rates, but are actually more choosey about who they will operate on — which, by itself, leads to higher value.

The last point I want to make about COEs isn’t about clinical issues —it’s about how much people really like a choice. So, I think that a COE that offers a plan a substantial financial incentive to use it, including adequate travel reimbursement and planning, is really important. But having the option to opt out of using a COE, to get care elsewhere, is also probably going to continue to be an important component of most employer-sponsored health coverage for the foreseeable future.

Abbott: Talk a little about ACOs, which have garnered a tremendous amount of attention since the passage of the Affordable Care Act. Should employers explore ACOs as a vehicle to either improve quality of care or reduce their cost?

Oliver: As the market continues to evolve from the fee-for-service model to value-based approaches, ACOs are being established to deliver an integrated model of care focused on quality and cost for a specific population. There are a couple of different approaches to ACOs, and while both are worth evaluating, Willis Towers Watson sees more potential for savings and overall quality improvement in the product model, where a member actually elects a specific health system or network during the enrollment period to use exclusively throughout the year. With the other major type of ACO — often called the attribution model — employees are “attributed” to a health system based on their use of services. Employees aren’t necessarily aware that they’re part of a different type of care, and the level of data shared with the health system is not as robust as in a product model.

Employers should be evaluating the ACO options available to them and be keenly aware of the product model available either through a health plan or a direct contract with a health system in an area where they have a large geographic footprint. When they’re evaluating these ACOs, employers should ask about things like:
  • The level of risk sharing built into the contract, and the incremental unit cost concessions negotiated.
  • The fixed up-front costs, if any. Oftentimes, the health systems charge a pass-through fixed PMPM [per member per month] or PEPM [per employee per month] to help the ACO cover some of the costs of the technology infrastructure that we talked about earlier. Eventually, employers may see a return on this investment as a shared savings if the ACO achieves the results promised.
  • The overall efficiency, quality metrics and patient experience criteria used to understand how the ACO is better for the member and patient.
  • The type of reporting employers can expect: how frequently, how granular? Will data be employer-specific or based on the entire ACO book of business?
  • The degree of flexibility an employer will have from a plan design standpoint and how can it steer employees to the ACO to really achieve the desired results.

Abbott: In your experience, Jeff, how good is actual ACO reporting on a specific employer?

Levin-Scherz: It’s uneven. For one thing, no one has much experience with ACOs. Many of the carriers have only recently established ACO contracts with some providers. It’s important that employers carefully look at reports that are available to assure that they are clear about what is being charged and for what services.

Sarah just highlighted the potentially hidden fees of up-front and ongoing costs. Another thing employers should ask about in advance — and have appropriate reserves for — is whether employers might be unexpectedly liable for future payments based on provider performance during the current plan year.

Abbott: As we think about value-based contracting from a strategic planning point of view, how do we counsel employers who are rethinking their health plan relationship? What do we encourage them to focus on in terms of aligning with the right vendors?

Oliver: In general, we’re seeing a lot of employers focused more than ever on vendor accountability regarding improved integration and then overall value for their members. I work with some employers that are supported by just a handful of third-party vendors and others that have 15 to 20. All of them are really interested in how we can work together to deliver the most value and the most streamlined experience for the members.

As a result, we’ve seen renewed interest in employers conducting vendor summits to bring together their various service providers to really foster improved collaboration as partners and a deeper understanding about what the employer strategy is, what they’re trying to accomplish, what their culture is, and also give them the opportunity to have more of an innovative discussion about how the vendors can leverage what they’re already doing to deliver something that adds even more value for the employer plan.

Beyond that, employers are challenging vendors to go above and beyond the usual performance guarantees, such as answering the phone within a certain time frame or turning ID cards around. Instead, they are focusing on things that have more of an impact — whether that’s actual ROI or engagement metrics, actual financial return or more of an intrinsic return to help support the employer’s culture of health and health management or care delivery efforts.

Levin-Scherz: Looking for vendors that have excellent reporting capability is critical because vendors that can’t report on what they’re doing are less likely to be effective at what they do for their clients.

We’re also seeing expansion beyond traditional operational metrics into clinical and even quality metrics. There’s more and more interest in data security as well. There have been so many breaches, as you know, in recent years that employers are seeking assurances that vendors are doing all they can to prevent breaches — not just protected health information but more broadly how the various health plans are securing information beyond HIPAA protected data.

Abbott: Excellent point. What should employers be thinking about in the months and years ahead?

Levin-Scherz: I think it’s important — although somewhat controversial — for employers to think hard about what they can do to make sure their members don’t suffer from the decline of primary care in the U.S. With insufficient numbers of doctors attracted to primary care, those doctors are focused, of necessity, on caring for growing numbers of people with severe, chronic or end-of-life disease. So, more healthy people will actually need other resources and tools to get the care they want and need, such as telemedicine and on- or near-site health centers.

Employers have played an enormously positive role in improving the health of their employees over recent decades. For instance, perhaps our country’s biggest public health accomplishment is that only half as many adults smoke now as smoked in the past. Employers have played a very important role in that achievement by offering coverage for tobacco cessation programs and creating a work environment that emphasizes clean air and makes it more difficult for people to smoke.

There’s actually a very big opportunity for employers to continue to improve the health of their employees and their families, especially employers with large concentrations of employees on campuses. They can continue to take steps to improve the work environment, including making it easier to take public transportation or walk to work, providing places to park one’s bike if one bikes into work, or offering cafeterias that subsidize healthy food over less-healthy food.

Employers can also help their employees and beneficiaries gain access to new technology, which will help give patients more control over their own health and health care. Today, that’s telemedicine and new innovations in pharmaceuticals that can cure previously fatal diseases, or turn them into chronic conditions.

Tomorrow, new technology is likely to include wearable devices that give patients insight into their blood pressure or diabetes control, and support their efforts to stay at a healthy weight and optimize their exercise. Health care innovation has the potential to improve our lives and drive down costs, and employers will play a key role in their members gaining access to this innovation.

About the survey: The 20th annual Willis Towers Watson/ NBGH Best Practices in Health Care Employer Survey was completed by 487 employers, representing 15.1 million full-time employees, in June and July 2015. See the full report.