An employee of Waukesha-based Weldall Mfg. Inc. recently needed surgery for carpal tunnel syndrome and traveled to Rockford, Illinois for the procedure.
The hour-and-a-half drive took the employee outside of Wisconsin, where the average cost of the surgery and accompanying pre- and post-procedure visits is $7,714, to Illinois, where that same procedure costs an average of $4,547.
Weldall, a mid-sized, family-owned metal fabrication and metal processing manufacturer, has been watching health care costs escalate for years. But the company has become much more aggressive over the past two years as it seeks to manage expenditures in a state where studies suggest health care can be burdensomely expensive.
A 2016 study from the Health Care Cost Institute found the price of medical services in Wisconsin were the second highest in the nation, according to claims data for the nation’s
largest insurance companies. According to the study, costs for 235 common treatments and examinations for commercially insured patients under the age of 65 were 81 percent higher in Wisconsin than the national average.
Like a growing number of employers throughout the state, Weldall is looking to dismantle the opacity around health care pricing, recognizing the unsustainable nature of ever-rising premiums and costs shifting onto employees.
In the case of the carpal tunnel surgery, the company worked with a third-party administrator to negotiate a fixed price for the procedure from a provider in Rockford. In the end, Weldall saved thousands of dollars and under its health plan, the employee didn’t spend a dime out of pocket.
“A lot of people are very cautious about taking a leap,” said David Bahl Jr., plant manager at Weldall. “They are used to calling up their insurance company and getting a quote for the next year. But we find those prices are unacceptable, and we still want to maintain a very good benefit package for employees.”
According to the most recent data from The Henry J. Kaiser Health Family Foundation, Wisconsin ranked seventh in the nation for its per-capita private health insurance spending. Wisconsin’s average of $5,159 placed it in the company of largely East Coast states, including Massachusetts ($5,302), Connecticut ($5,187) and New Jersey ($5,081). By comparison, neighboring Minnesota’s spending ($4,603) nearly matched the national average ($4,551).
Employer impact
Data indicate employers face a particular burden in covering their employees.
When it comes to the average annual family premium for employer-based health insurance, Wisconsin employers’ contribution ranked the state eighth highest in the nation, according to Kaiser Foundation data. Employers paid $13,660 per enrolled employee, compared to the national average of $12,754.
For employers, it’s a particular cause for concern as they seek to retain and attract employees in a tight labor market.
“As employers, especially manufacturers, fight for employees, we’re trying to put the best package out there for compensation and health care,” Bahl said. “So we’re not only focused on wages, but (also) benefits, as a way to bring people to the company.”
Suzanne Kelley, president and chief executive officer of the Waukesha County Business Alliance, said health care costs concern her members, particularly in light of current workforce shortages.
“I would say our member businesses agree that health care costs are a challenge for them,” she said. “That said, workforce is still the No. 1 issue they are concerned about, but health care is part of that equation. In general they are dealing with rising health care costs, and it’s challenging. In Wisconsin versus other states, it puts them at a competitive disadvantage where health care may be more affordable. And they have to deal with that either through less investment in equipment, constraining employee salaries or less on R&D.”
Contributing factors
Health care system mergers, which analysts say have accelerated since the federal Affordable Care Act took effect, tend to be a driver of costs.
While the benefits of consolidation are better integration of care and less duplication of clinical services, those operating cost reductions don’t necessarily translate into price decreases. Historically, hospital mergers have increased the average price of hospital services by between 6 percent and 18 percent, according to the National Council on Compensation Insurance.
“If there is less competition, there is a tendency to drive up price,” said Tom Hefty, a retired chief executive officer of Blue Cross-Blue Shield United of Wisconsin. “That’s true whether you’re talking about automobiles or beer or health care.”
Milwaukee-based Aurora Health Care’s announcement in 2017 of its merger with Illinois-based Advocate Health Care – a union that was finalized in April
– occurred during a record year for merger and acquisition activity among hospitals and health systems nationally. It came a year after another significant deal: St. Louis-based Ascension’s acquisition of Wheaton Franciscan Healthcare, which brought together the Glendale-based system and former competitor Columbia St. Mary’s, along with Ministry Health Care and Affinity Health System.
“Every year there is another one, to the point where there is really little left to consolidate,” Hefty said.
Still, reported health care data often lags, sometimes by several years, making it difficult to track trends related to costs in real time. The effect of Ascension’s acquisition of Wheaton Franciscan Healthcare and the Advocate-Aurora merger, for example, are too new to be reflected in the most recent data sets. Ascension declined to comment on this report.
In addition to the merger of systems, many of Wisconsin’s health systems have engaged in vertical consolidation, acquiring many formerly independent physicians, which can also drive prices up.
“If you compare a fairly highly consolidated state, which I think Wisconsin is relatively high, to a state like Maryland, which has higher numbers of independent providers of medicine, you see lower prices in Maryland than you do in Wisconsin,” said Scott Adams, a professor and the chair of the economics department at the University of Wisconsin-Milwaukee. “In some states, though, consolidating might be the best operation for that state in order to serve its citizens, but it does have this other side to it, and that is higher prices.”
With mergers and acquisitions creating more powerful provider systems across the state, analysts argue that Wisconsin’s health care environment skews in favor of providers, with their size and scope giving them leverage when negotiating with insurers.
“Now if (an insurance company) can’t come up with a deal with Advocate Aurora, they have virtually no market share of supply-side doctors from about north of Green Bay to south of Chicago, so no one would buy that network,” said Jim Mueller, president and CEO of Waukesha-based health benefits consulting firm Mueller QAAS LLC.
Benefits of consolidation
Brian Potter, senior vice president of finance and chief operating officer of the Wisconsin Hospital Association, said consolidation has also occurred on the payer side of the equation with health insurance company mergers.
Meanwhile, hospital industry representatives argue provider consolidation can be a driver of greater efficiencies.
“A big benefit of consolidation, besides cost-cutting opportunities, is in regards to better care coordination that comes with integration,” Potter said. “Unit price is one component of overall cost, but so are utilization rates and outcomes. Wisconsin has demonstrated excellence in the quality of care – which also reduces overall cost to the system. Integration plays a role in Wisconsin’s success.”
Discussions about costs can’t be divorced from considerations of quality, particularly when comparing from state to state or even city to city.
“Unit price isn’t the only dynamic in play with regards to overall cost,” Potter said. “For example, let’s say the unit price of a knee replacement is higher in one state on average than another. Does that mean it is really less expensive? What if the state with the lower unit price also had a higher readmission rate for those knee replacements and worse outcomes?”
In 2016, Aurora Health Care and Anthem Blue Cross and Blue Shield launched a 50-50 joint venture, aligning the incentives of two players that historically have had an adversarial relationship – provider and insurer. The venture, Wisconsin Collaborative Insurance Co., is aimed at improving value and efficiency of health care services, thereby reducing costs by keeping people healthier.
Officials point to the positive outcomes of the venture. Among the company’s Well Priority product’s 35,000 large commercial employer group members, emergency room utilization is down 11 percent and inpatient admissions are down 18 percent.
“All of our clinical and operational decisions are guided by our relentless pursuit of providing the highest quality of care at the lowest cost for our patients,” said John Foley, president of Wisconsin Collaborative Insurance Co. “It’s important to not just focus on the per unit cost of certain services, because data continues to support our view that when we manage the continuity of care within our system through our population health model, we are able to drive efficiency and quality improvements, enhance health outcomes and bend the cost curve. As a result, we provide more value to those who receive, deliver and pay for care.”
Depending on the study, Wisconsin consistently ranks highly for the quality of its health care. U.S. News & World Report recently placed the state at 15th in the country for quality, based on Medicare quality, hospital admission rates, nursing home quality and preventable hospital admissions.
Another recent comparison of states’ health care quality from the federal Agency for Healthcare Research and Quality named Wisconsin as the best in the Midwest and fourth in the nation. It’s consistently ranked in the top four states, and was ranked first in the nation in 2006, 2008 and 2017 on the report.
“Providers, administrators, patients, and families are working together in effective partnerships, across care settings locally and regionally – and that shows,” said Eric Borgerding, president and CEO of the Wisconsin Hospital Association, of the AHRQ rankings. “Wisconsin is a national leader and is known for its high-quality, high-value health care. These rankings reflect not only outstanding performance today, but more importantly, a trend spanning over a decade demonstrating a sustained commitment to affordable, accessible, quality health care that our members deliver each and every day.”
Utilization drives costs
Other factors that contribute to higher health care expenditures are tied to utilization.
Analysts note that Wisconsin’s population is older, a demographic that requires more services.
“We don’t have the oldest population – that’s average and well above average,” Adams said. “So if you compare Wisconsin to Utah, for example, that has a younger population, we’re at a disadvantage in terms of resource utilization purely because of the age of our population.”
Wisconsin’s adult obesity rate also is above average at 32 percent, ranked 21st in the nation, according to a recent Robert Wood Johnson Foundation study.
“When paying for obesity-related ailments that occur, you will have higher utilization of health care services,” Adams said.
Cost of care
Meanwhile, recent indicators suggest the trend of rising costs could be decelerating.
Consulting and actuarial firm Milliman recently forecast that the cost of health care for a typical family of four covered by employer-sponsored insurance will increase 4.5 percent in 2018, the lowest increase in the Milliman Medical Index’s 18-year history. In 2018, the cost for a typical family of four was $28,166. Several trends could be contributing to the cooling effect. Analysts point to narrow networks providing discounts on health prices; on-site work-based clinics; a push toward bundled prices and generic drugs; and providers’ growing telemedicine offerings.
“It’s started to change,” said Eric Haberichter, co-founder and chief executive officer of Milwaukee-based Access HealthNet. “Costs are trending down now. A lot of local, independent PPOs have worked some very good deals. The providers themselves are forming new, narrow networks within accountable care organizations that offer some pretty steep discounting.”
Another emerging trend: employers are beginning to demand more transparency from providers.
While general supply and demand principles play a role in determining costs, the health care industry is unique in the way it operates because of one key difference: consumers generally don’t know the cost of what they are buying.
“If there is no competition based on price, because there is no transparency, there is no ability for buyers to make a value-based decision,” said Ross Bjella, chief executive of Alithias Inc. “And therefore there is no advantage to a provider who lowers the price. Therefore, none of them do.”
Access HealthNet, a Milwaukee-based startup, has emerged in response to that issue. The company serves as an intermediary between providers and employers to bundle health care services and offer each for a predetermined flat fee. It’s built on the idea that consumers want to purchase health care services like they would any other product, knowing exactly how much it costs upfront, not being taken by surprise by a bill 30 days later.
“It’s really about supply chain management,” Haberichter said. “It’s predictable. People who crunch numbers for a living like predictable things – that the cost of 100 of X equals Y. In the normal system, the price is wildly variable. For folks that crunch numbers, that’s kind of scary.”
There are reasons providers shy away from disclosing their costs. For one, it could put them at a disadvantage when negotiating with insurers. Moreover, there are many factors making health care expenditures difficult to precisely quantify, including accounting for the percentage of Medicare and Medicaid patients, along with those who don’t pay at all.
Still, employers and employees, having experienced escalating costs for decades, are beginning to seek greater transparency around just how much they are paying for their health services. Despite low unemployment, many middle-income employees have seen their wages plateau as larger portions of their compensation in recent years is directed toward benefits.
Bjella, the former president of DDN, a division of Milwaukee-based F. Dohmen Co., knew something needed to change as he watched the cost of health care for his employees reach an unsustainable point in the mid- to late-2000s.
“We were increasing the deductibles in the insurance costs for our employees and it became apparent to me that the average employee would very quickly no longer be able to afford the cost of their care,” he said.
Around that time, Bjella heard John Torinus, chairman of West Bend printing company Serigraph Inc., speak about the company’s aggressive attempts to tamp down health care costs. Bjella approached Torinus, who had recently written a book on his company’s efforts, asking Torinus about developing a platform to help more companies manage costs.
In 2011, Bjella founded Alithias Inc., a Milwaukee-based startup that provides employers with analytics services to help tamp down costs. Alithias offers what Bjella calls “generation two transparency.” Generation one, Bjella said, was where the company got its start: providing estimated costs in columns and rows on a website to help consumers make more informed choices. It was a good start, but not enough to change behavior, he said.
“What we learned is that there are so many moving factors in health care and so many more questions people have that they really need to talk with someone about them,” he said. “So we hired care navigators and benefits advocates to help people understand the economic impact of their health care decision and understand how to best utilize their benefit plan. And that’s really when the company started to take off.”
Alithias’ platform helps employers find quality providers for the lowest price, helping negotiate fixed rates for those services.
With the Eau Claire and Rice Lake areas historically experiencing high health care costs, employers in northwest Wisconsin are increasingly traveling outside of their market for procedures, Bjella said. Faced with the option of an average $46,000 price tag on a knee replacement bundle in Eau Claire, they will instead send their employees to Minneapolis, where the same procedure is performed by a similar quality provider for $22,000 to $29,000, he said.
Alithias also coordinates with NOVO Health in Appleton, a network of independent specialists who have bundled their services to contract employers, thereby providing clients with fixed, bundled rates.
“Nearly all my employer clients in Eau Claire offer incentives for their employees to travel,” Bjella said. “We’ve literally moved millions of dollars of surgical business out of the state last year, or to providers like NOVO.”
Weldall has worked with Alithias for the past two years. Being self-insured, Weldall has made a big push to educate its employees about being proactive consumers of health care. They are encouraged to shop around, not just going where their doctor referred them, said Alesia Butera, human resources manager at Weldall. For wellness and preventative care, the company offers employees those services at a QuadMed clinic at no cost to them.
For larger procedures, the company steers employees to providers with whom Alithias has negotiated fixed, flat rates. It even incentivizes them to do so, offering employees a cash incentive of $100 to $1,000 for choosing a quality lower-cost provider. And under the health plan, the employee doesn’t pay a co-pay or deductible.
“They won’t even see a bill,” Butera said.
Those efforts have caused employees, who historically have been more concerned with their own contribution to health benefits than their employers’ share, to consider the total cost of coverage for the company.
“We explained to employees that if we save costs, we will have better profitability and can share that through 401(k) contributions, through new equipment,” Butera said. “It’s really starting to take off now that we’re rounding year two.”
Weldall this year expects to save $60,000 from utilizing Alithias’ services.
Bjella said attention should be paid to what small- and mid-sized companies are beginning to demand from their health care plans, as it could begin to push the needle on lowering costs.
Weldall leaders agree.
“This is what’s really going to drive a competitive market and drive those hospital costs down,” she said. “With Wisconsin being so high for health care costs in the country, if we can get more companies involved in programs like this, we can work together to drive the overall costs down and increase competition.”
