1

Three Key STraTegieS for reducing

healTh care coSTS

Content of this eBook is based on the December 11, 2014 webcast hosted on CFO.com NEXT >>

Unlocking the Mystery

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abouT The auThor

• 22+ years in the health and wellness industry, with a focus on preventative medicine

• Founded Health Coach Corporate Wellness Centers in Phoenix for clients such as Discover Card, American Express, Microsoft and AT&T

• Recognized need for expanded data collection and analytics systems, so he merged his company LifeStrive with Health Data Resources to form TrendShift in 2012

Dr. Rick Perryman Cofounder & VP, TrendShift

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inTro

Controlling health care costs is a hot topic in most organizations, with average increases expected to be about seven percent this year1. Common approaches to addressing these rising costs include shifting more of the costs to employees or reducing the overall benefits offering — approaches that don’t exactly support a healthy and engaged workforce.

In this eBook you’ll discover better strategies that enable you to:

• Analyze claims data to ensure you only pay for legitimate medical expenses

• Gain transparency and negotiation leverage to prescription pricing

• Help your employees understand their health risk factors years before they will require expensive treatments

• Drive over 50% participation in a wellness program that can be validated to save money while helping your employees become healthier and more productive

• Partner with your consultants for a new approach to managing your benefits investment

Start unraveling the mystery now by turning to the next page.1 PwC http://www.npr.org/blogs/health/2014/06/24/324915672/

employer-health-costs-are-expected-to-rise-in-2015

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evolving healTh care MarKeT

It’s not a mystery to anyone that the health care market is evolving. We could even argue that it’s probably the most adaptive and evolving market in our economy because lots of folks are on either side of this equation. The medical delivery system is constantly looking for ways to increase revenue, and the self-insured employers and other health care risk holders are constantly looking for ways to reduce costs. So, the economics are fundamentally not aligned, which is always a problem.

Consumer-directed health care plans have increased 15 percent in the last few years — an indicator of the employer strategy to shift more health care costs and accountability to employees. While this is certainly a viable strategy, it doesn’t fundamentally get at the root cause of health care cost increases.

Another popular employer cost containment strategy is wellness programs. While the vast majority of employers offer these now, it is unclear if these wellness programs are actually impacting health care costs.

2American Association of Preferred Provider Organizations (AAPPO) president Karen Greenrose commissioned a Mercer survey of employer health plans and found that 45 million people were

enrolled in Consumer Driven Plans in 2013, up 15% from 39 million in 2012. – See more at: http://healthblog.ncpa.org/consumer-driven-health-care-round-up/#sthash.RiVXwDg0.dpuf

3RAND Health Study March 2013 http://www.dol.gov/ ebsa/pdf/workplacewellnessmarketreview2012.pdf

15%Growth from 2012 to 2013 with 45 million enrolled2

CDHC

92%

Offered by employers with 200+ employees3

Wellness Programs

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There’s obviously a lot of complexity and challenges in health care. If you take a look at a recent Aon Hewitt study, you’ll better understand employers’ top-desired health care outcomes.

Employers want people to understand their health and wellness and to be engaged in a process to improve those things very specifically.

They want engagement from a consumerism perspective as well.

They want employees to understand that there are varying prices and varying levels of value received in health care.

Clearly, employers want to lower their population’s health risk and to reduce longer-term health trends.

Finally, they want to increase employee use of tools and information on health care price and quality.

And, if these outcomes could all come together in a single-source solution (which they can) employers can achieve these goals.

66%

65%

52%

48%

34%

2014 Health Care Survey; Aon Hewitt

Employers’ Top-desired Health Care Outcomes

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finding The healTh care SavingS opporTuniTieS

If you look deep enough at what the average self-insured employer is currently spending on health care, you’ll typically find about 15 percent of that spend is waste (or viewed positively, an opportunity to save money). These opportunities come in different aspects in health care: health care access and delivery efficiency; medical claims integrity issues; pharmacy benefit management; and claims prevention. (After all, it’s much less expensive to prevent a claim than to try to mitigate the costs associated with a claim.)

While 15 percent is the average savings with a self-insured employer, these numbers can be much higher, especially in organizations that have historically had very rich benefits (e.g. they’ve been the employer of choice with regards to benefits in a specific area.)The savings opportunities in those types of organizations can be as high as 25 or even 30 percent.

What is your organization’s top priority as it relates to health care?

a)Promote CDHC plans and tools

b)Increase employee cost sharing

c)Promote a culture of health

d)Offer wellness incentives

e)Implement a wellness policy

18.8%

23.2%

40.2%

12.5%

5.4%

Participants in 12/11/14 CFO.com webcast

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STraTegy #1: going beyond The audiT

If you’re like many employers (particularly mid or large size), you or your broker/consultant has done some sort of an audit — maybe on the medical payer side as well as the pharmacy benefit management side. These audits tend to be focused on very obvious issues. Depending on the contract language and the carrier or the PBM contract, you typically have an opportunity to do a sample claims audit. An opportunity analysis really looks much deeper not only in terms of waste, fraud, and abuse at billing, but in terms of where there are opportunities in delivery and access efficiency.

The other problem with traditional audits is that they’re retrospective — something has already happened and now we’re trying to rectify that. And some sort of restitution is typically in play. The issues with this approach are many, not the least of which is it’s very difficult to collect money back from a provider that’s already been paid. The better way to address this is to establish a real-time analysis and find problems before they become costly issues.

What is your greatest pain point as you try to control your organization’s health care costs?

a)Health care provider delivery

b)Medical claims integrity

c)Pharmacy management performance

d)Claims prevention

32.2%

11.9%

5.9%

50%

Participants in 12/11/14 CFO.com webcast

Stephen Parente, University of Minnesota, The Wall Street Journal, February 19, 2011

30-40% Of Claims Contain Errors

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You also need to understand the principle of risk. If you are a self-insured employer, you are the risk holder. With fully-insured employers, the insurance carrier holds the risk. As you can imagine, claims are viewed differently depending on who holds the risk.

Carriers will want to send you your data in a “mapped” way that typically is not in your best interest. It’s better to receive the raw, unfiltered data that can then be analyzed in a specific format so that you can find all of these issues which can go very, very deep. Many times the data mapping has been institutionalized across providers within a specific network based on the assumption that you don’t necessarily need to change networks; you can perfect the network you already have. Within any network there are high and low-value providers, so how do you get more access to understand who the high-value providers are so that you can specifically direct your people to those providers?

Transparency. There’s a lot of talk about transparency in health care today. I ask employers when they say they are looking at a transparency system “Transparency as defined by whom?” Because transparency is the new throw-away word in health care. If it is the payers and the pharmacy benefit managers and the folks on the other side of the economic spectrum from you, the risk holder, then you can bet they don’t define transparency the way that you would. I think that the only standard for transparency is fiduciary-level transparency because that’s the only way we know for sure that self-insured employers have no risk from an ERISA perspective.

To what degree do you feel you have visibility to the value of your health care?

a)Complete, real-time visibility

b)Visibility on an annual basis

c)Visibility to some elements

d)Little to no visibility

5.4%

17.9%

42%

34.8%

Participants in 12/11/14 CFO.com webcast

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Going beyond the audit requires getting the data in real-time, unfiltered from the third-party administrator or payer and the pharmacy benefit manager, and protecting that data in very specific ways so that you can organize and standardize it. Once you can do that, you can analyze it with all kinds of different proprietary service architectures — most notably using asynchronous1 cuing services because health care data that exists in a silo just isn’t that interesting. The data gets very interesting when it lives in a service architecture where that information can be shared. When you can share biometric data, pharmacy data, and claims data you begin to see patterns emerge; both patterns in health trends as well as patterns emerging in provider networks and even all the way down to a single provider.

Typical audits are retrospective and you will find some money, but you’re not fixing the problem going forward. This is about a new approach that literally makes audits obsolete because when this process occurs in real-time, you don’t need to audit.

1.a·syn·chro·nous \āˈsiNGkrənəs\adjective: asynchronous

Computing Telecommunicationsof or requiring a form of computer control timing

protocol in which a specific operation begins upon receipt

of an indication (signal) that the preceding oper- ation has been completed.

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Let’s review an actual case study to see how this concept of transparency comes into play. The employer had contracted with a regional urgent care organization who offered them a facility fee discount (urgent care visits receive an additional “facility fee.”) The employer encouraged their employees to use the preferred urgent care center so they’d receive the discounted facility rate. Sure enough, better than 50 percent of all the urgent care visits for this very large company went to this preferred urgent care provider.

While this appeared to be a positive situation for the employer, a deeper analysis uncovered something else. Evaluation management codes are assigned by provider organizations based on the complexity of the visit. A visit coded Level 1 would be low complexity such as refilling a prescription.

A visit coded Level 5 is typically something very bad — an emergency situation. As you might expect, urgent care facilities see very few Level 1s, and they see very few Level 5s because the Level 5s are in the emergency room and the Level 1s typically go to their primary physician. Therefore, you’d expect to see a bell-shaped curve for the distribution of these codes, meaning the vast majority of the urgent care visits are Level 3s.

However, when a deep analysis was conducted for this employer, we saw that the urgent care center had institutionalized an upcoding process — 97 percent of all of the urgent care visits from this urgent care provider were Level 4 evaluation management codes. The net result of this upcoding was millions of dollars in excessive fees. Armed with this knowledge, the employer recovered the excess fees and renegotiated the contract. With a real-time analysis system in place, the organization didn’t have to worry about this happening again.

Level 1 Level 2 Level 3 Level 4 Level 5

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16% or moreof employer’s total health care budget spent on pharmacy benefits

86%of all medicines used in the U.S. are generics, but this hasn’t reduced total spending on drugs

600-1,000%price increase for many essential generic prescriptions over the last five years

STraTegy #2: eMpower rx negoTiaTionSBy far the fastest growing segment of health care spending is prescription drug costs. In fact, 16-18 percent of an employer’s health care budget is spent on medications. Drug costs are high and getting higher quickly. So, it’s something that we want to pay specific attention to. While 86 percent of all medicines used now are generics, spending isn’t going down, it’s going up. This has to do with a couple of variables — generic prices are going up dramatically and games are being played in the world of pharmacy benefit management (PBM).

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Comp A 00440786190 $10.51 $315.30 -15% $1.50 $269.51

Comp B 54868451003 $8.60 $258.00 -16% $1.00 $217.72

Comp C 50436312101 $13.25 $397.50 -17% $0.75 $330.68

Comp D 68115086730 $9.52 $285.60 -24% $0.00 $217.06

Comp E 47463054030 $12.09 $362.70 -40% $0.00 $217.62

Astra 00186504225 $7.52 $225.60 Zeneca

Fiduciary $7.52 $225.60 -15% $3.00 $194.76 PBM

NDC AWP AWP for Discount Disp. Total Code* 30 pills Fee Rx

Example: Nexium 40mg (Astra Zeneca)

*Prices effective 11/1/2012; 47 total AWPs for Nexium on that day

Average Wholesale Price (AWP) has no relevance in projecting final cost; only “full fiduciary” management will guarantee lowest AWP

There were 47 average wholesale prices for Nexium 40mg on this day.

Let’s look at a specific example of one of these PBM games. If you work with a PBM (or if you have in the past), you’ve probably had a contract built around the concept of average wholesale pricing (AWP) and applying a discount to the AWP. The problem with this approach is that AWP is an absolute meaningless term. In this Nexium example, you’ll see that there were 47 average wholesale

prices very specifically for that drug at that strength on that day. How can that be? That’s part of the gamesmanship that goes on, and this is how it works. There’s an NDC code established for each drug and an established price for that drug on each day. In this case, AstraZeneca’s Nexium 40 milligram had the actual NDC code of 00186504225 and price of $7.52 per tablet on November 1, 2012.

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Note the differences in NDC codes from the manufacturer’s NDC.

Comp A 00440786190 $10.51 $315.30 -15% $1.50 $269.51

Comp B 54868451003 $8.60 $258.00 -16% $1.00 $217.72

Comp C 50436312101 $13.25 $397.50 -17% $0.75 $330.68

Comp D 68115086730 $9.52 $285.60 -24% $0.00 $217.06

Comp E 47463054030 $12.09 $362.70 -40% $0.00 $217.62

Astra 00186504225 $7.52 $225.60 Zeneca

Fiduciary $7.52 $225.60 -15% $3.00 $194.76 PBM

NDC AWP AWP for Discount Disp. Total Code* 30 pills Fee Rx

Example: Nexium 40mg (Astra Zeneca)

*Prices effective 11/1/2012; 47 total AWPs for Nexium on that day

Some of the big PBMs had a dozen or more average wholesale prices for the same drug on this given day (this is just 5 of the 47 at random.) If you review the column for the NDC code, you’ll see that each competitor’s NDC code is different than the manufacturer’s NDC code. This is happening because of the little-known practice called relabeling and repackaging. There is no federal oversight to restrict a PBM from relabeling, repackaging and changing the NDC code of that drug. Well, guess what else happens when they change the NDC code? They change the price of the drug. So, if you do the math and you were working with Competitor A, your negotiated 15 percent

discount of the AWP is based on an AWP of $10.51 (not the manufacturer’s AWP of $7.52). Even with the discounted dispensing fee (another common element in a PBM contract), you are still paying over $40 a month more than you should be for this prescription. Notice that the numbers in red, the fiduciary PDM, would have given you the actual AWP and a flat, transparent admin fee, resulting in a much lower price for Nexium.

Looking at this chart illuminates the challenges; you may think you’ve negotiated a terrific PBM contract, but it’s completely dependent on what AWP is used.

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One way to resolve this issue is through simple contract language asking for full fiduciary management. This means the PBM accepts fiduciary responsibility and you have true transparency. You’re guaranteed to get that price each and every time.

You are now empowered and can negotiate. You know where the costs are hidden and you understand what is going on behind the scenes. You can find out what you really should be paying for prescription drugs. With the increased use and costs of specialty drugs and generics, you’re going to continue to see more of this game playing. If you get the help of a trusted advisor and full fiduciary PBM, you’ll be receiving optimal Rx pricing which, in our experience, means you’ll pay 10 to 30 percent less for your prescription drug cost overnight.

You can find out what you really should be paying for prescription

drugs.

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STraTegy #3: prevenT vS. SiMply diagnoSe

The vast majority of health care costs — 84 percent in fact — are for treating things that were once preventable. And most of that spending is not necessarily where we think it might be. It’s on a younger and younger population all the time. It’s our diet, lifestyle, and behavior that are driving those issues. Unfortunately, the net result of these choices is a declining population health status.

8 Top Health Risks & Behaviors1. Poor diet2. Smoking3. Poor stress management4. Physical inactivity5. Lack of health screening6. Poor standard of care7. Excessive alcohol consumption8. Insufficient sleep84%

Overall Medical Costs Caused by chronic, mostly preventable illness

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There are fresh, new ways to begin looking at these problems though. And again it has to do with getting deeper into the data, understanding things on a more comprehensive level. For example, a common prevention or wellness program might measure blood sugar levels once a year. Let’s say that an employee’s blood sugar levels are found to be high at this screening and they are told to go see their doctor. The doctor will check the employee’s Hemoglobin A1c and end up diagnosing diabetes. In this scenario, it’s simply too late. Once an employee is diagnosed with diabetes they cost the health plan 5 to 15 times more than what they did previously — even if they are doing a good job managing their diabetes. If the employee’s diabetes isn’t well-managed, the costs skyrocket as a result.

Typical corporate wellness programs are linear and capture only a few biomarkers. The problem is that biomarkers aren’t designed to be used in this way. If you can measure more comprehensively, however, and you can interpret that data as trend, you can begin to see the patterns emerge in the data that you wouldn’t otherwise see. You can be as much as 10 or 12 years in front of a diagnosis of something like diabetes because long before someone has diabetes they have metabolic syndrome and fatty liver disease which can be seen much earlier. This approach to more consistent and comprehensive measurements is a big movement in the marketplace today.

When individuals can see their own health trends over time, they can understand what actions need to take place and how to rectify those issues — ideally pre-diagnosis. This means observing things in a bio-predictive, clinical manner long before they are a named chronic, critical, or degenerative illness. And that’s the difference between really early detection and prevention.

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Looking at the data in aggregate, you can begin then to see that — and this is true of just about every population we look at — a very small percentage of the population accounts for the vast majority of the claims. Even more frightening is that statistically for about every person in that high-risk category today there’s one or two people standing in line to take their place, and that line is moving fairly quickly. Our culture is trending towards chronic critical and degenerative illness very, very rapidly now. When we can start to understand this very specifically by measuring outcomes and tracking trends, we can start to evaluate and reward key behaviors. If we can get far enough in front of these problems to actually prevent them from happening, we will make huge strides in population health and our health care budgets.

COSTLow cost Mid cost High cost

59% of employee population

34% of employee population

7% of employee population

13%

22%

65%

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One of the scariest things that we see is a dramatic increase in health care costs — 76 percent — when individuals move from low risk to high risk. And, unfortunately, the vast majority of populations aren’t simply moving from low to moderate risk. Populations are moving from low or no risk (they incur little or no claims each year) to incurring a lot of claims. We didn’t have much of the heads-up that they were about to move from low risk to very high risk — they just showed up one day and we started seeing tens of thousands of dollars of claims. Having a much more robust bio-predictive dataset and being able to trend that data over time finds these individuals who are otherwise invisible to the system. An early detection process won’t necessarily catch these people until it’s too late.

76%increase in annual

health care costs

Low Risk to High Risk

High Risk to Low Risk

48%decrease

in annual health care

costs

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Here’s a case study that illuminates this problem. A large Fortune 500 company had a wellness program in place through their carrier. They were doing health fairs and collecting biometrics. They had about $122 million annually in health care spend with 14,429 participants. When we reviewed this organization, about five percent of that population (748 individuals) accounted for about $50 million in claims or 41 percent of the total. When we went back a year further in their data, almost 60 percent of that high-risk population had been in the lowest risk category as defined by the health insurance carrier. What was lacking was a functional understanding of where people are trending earlier in the process versus waiting for them to show up with one of these conditions. When you’re having a lot of claims, you’re high risk; that’s too late and fairly obvious. Once this employer had a more robust bio-predictive dataset, they could start to effectively predict these conditions pre-diagnosis, before they turned into a claim.

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pulling iT all TogeTherThese three strategies: going beyond the audit; empowering prescription negotiation; and predicting versus simply diagnosing; can come together with the concept of an enterprise management solution. Just about every other aspect of an organization’s business has solutions to measure and monitor operations — health care tends to be the outlier because we lack the transparency and accountability necessary for such a solution. Thankfully, this is changing. Now you can gain transparency to really see provider performance and find the high-value centers within a current network. Those efficiencies then lead to an understanding of how providers are working for your organization. Are they high or low-value providers? And while it’s surprising to many employers that claims processing isn’t very accurate, there are ways to dig deeper and improve claims accuracy — even prevent overpayment. The net result of having all of these things live in a single-source solution is very exciting going forward.

Cost Savings &

Accountability

Transparency

Need visibility to actual costs,

provider performance and

value

Efficiencies

Understand in real-time how

payers and providers are

working for your organization

Accuracy

Expect reduction in errors

and prevention of over

payment

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All of the systems and technical solutions in the world won’t be effective without good organizational communications and relationships. HR and Finance departments need to work closely together to ensure benefits goals are in alignment. While HR typically has their finger on the pulse of employee needs, they may not have access to the data or financials. ERISA compels self-insured employers to have access to this data. It’s not like it’s a right, it’s an obligation to understand how the money is being spent, where the efficiencies are, and where the inefficiencies are, and where the opportunities for improvement are very specifically.

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Coordinating the Finance and HR perspectives helps address any corporate culture issues. Everyone needs to recognize that benefits management decisions will have some sort of impact on employees and on business relationships. Ideally, HR and Finance functions should partner together to proactively approach benefits management armed with data and insights.

How do your Finance and HR leaders currently work together on benefits management?

a)Complete collaboration

b)Finance gives direction/budget

c)HR fully controls benefits

d)Finance has minimal, budgetary involvement

39.1%

30.4%

12.2%

18.3%

Participants in 12/11/14 CFO.com webcast

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Strategy #1 is going beyond the audit. This strategy requires you to have complete access — unfettered, unmapped and real-time — to your data. If you use an enterprise management system, you don’t actually need an audit because you know in real-time that you’re getting good value for your money and that your provider network is performing. You know who the high and low-value providers are within your network, and you’re steering your employees to the high-value providers.

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The Three Key STraTegieS in SuMMary

Strategy #1: Going Beyond the Audit

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Strategy #2 is all about empowering prescription pricing negotiations. To execute this strategy, you need to understand what you’re paying versus what you could have paid — the optimal pricing structure. When you have transparency to the claims and pricing data, you can run a functional comparison. There’s a lot of potential cost savings here for most employers.

Strategy #2: Empowering Prescription Pricing Negotiations

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Strategy #3 is the concept of preventing, versus simply diagnosing, medical conditions when they’re more costly. With all of the industry talk about wellness, I think we’ve confused the distinction between early detection and prevention. While early detection is much better than late detection, don’t kid yourself — it’s not prevention. Preventing these conditions requires us to predict that they are going to happen before they happen. When you’re talking about something as complex as health and human behavior, you need a much broader dataset than is typically available via most wellness programs. There are cost-effective and extremely efficient ways to capture data more comprehensively and display that information back as a trend analysis. Then you can statistically slope that data over time, which allows individuals and the organization in aggregate to really understand where you are today and where you’re likely to be — what is the trend and what actions can be taken to positively change this trend?

Strategy #3: Prevent vs. Simply Diagnose

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Connecting the dots between transactional claims data with rich, bio-predictive health data provides opportunities for true prevention. Then we can unearth those opportunities to reduce costs while improving employee health, and that’s really what this is all about: happier, healthier, more productive employees and reducing health care spend.

27©2015 Ceridian HCM, Inc. All rights reserved.