Rae Woods (00:02):
From Advisory Board, we are bringing you a Radio Advisory, your weekly download on how to untangle healthcare's most pressing challenges. My name is Rachel Woods. You can call me Rae.

(00:13):
Last week on Radio Advisory, we talked about the current state of employer-sponsored insurance, and we talked about the rise of employer healthcare costs. This week I want to talk about the opportunity that value-based care presents for employers to reduce those costs while, of course, maintaining or increasing quality for their employees. To do that, I brought two Advisory Board experts, Daniel Kuzmanovich and Sophia Hurr.

(00:38):
Hey, Sophia. Hey, Daniel. Welcome to Radio Advisory.

Sophia Hurr (00:42):
Hi, Rae.

Daniel Kuzmanovich (00:44):
Glad to be here.

Rae Woods (00:44):
Daniel, any advice for Sophia? This is her first time on the podcast, and you, I know, are a seasoned pro at this point.

Daniel Kuzmanovich (00:50):
Be yourself. That is my number one piece of advice. Be yourself and smile. Talking to a recording device doesn't always feel very organic, but if you smile, you actually end up feeling a lot better.

Rae Woods (00:59):
I love it.

Sophia Hurr (00:59):
Thanks for the advice, Daniel.

Rae Woods (00:59):
You two are actually joining us for part two of a conversation about the employer market, and you weren't here for last week's recording, so let me give you the quick recap. We were really, really focused on affordability, right? We know that employers have been saying for literal decades that their healthcare costs are unsustainable. In fact, we had a little bit of an argument about, well, is it sustainable if they've been able to sustain this even as costs have grown over the last three decades, but they're really looking for more opportunities to experiment in order to control their costs and maybe are reaching a point of more activation than we've ever seen them.

(02:01):
What I want to talk to you two about is the connection between employers and value-based care because, in theory, value-based care could create an opportunity. It could be one of those experiments for employers, but I'm not sure that our audience necessarily knows the role that employers play in value-based care. It's not that intuitive. So what can employers actually do to advance value-based care?

Sophia Hurr (02:24):
Employers have a really big role in shaping their benefits offerings to align with value-based care. So picking the right solutions to offer to their employees that really get at the core tenants of VBC, which are improved healthcare outcomes and decreased costs. So many lives are covered under employer-sponsored insurance. There's a lot of potential there to really push the rest of the industry towards risk.

Daniel Kuzmanovich (02:48):
Completely agree. Everything Sophia just said comes to a word you used, Rae, and that is activation. Employers have the opportunity to look at value-based care as an element or a part of their strategy for being more active in responding to that affordability challenge.

Rae Woods (03:05):
But my understanding is that while there's a lot of potential, that potential remains largely untapped. Is that right?

Sophia Hurr (03:14):
Yeah, definitely.

Rae Woods (03:15):
Why?

Sophia Hurr (03:17):
Okay, so two reasons here. First, the industry really underestimates employers because they're not a traditional player in the healthcare industry.

Rae Woods (03:24):
Yeah, that's exactly what I thought at the beginning.

Sophia Hurr (03:26):
Yeah, right. When you think of healthcare, I don't think of employers, at least. And second, employers really underestimate their own power just because there's a lot of barriers to entry for employers when it comes to value-based care, so with all those barriers, employers aren't really fully embracing or understanding their potential. So there's a general lack of knowledge from employers on the healthcare industry, especially HR staff or companies that don't have anything to do with healthcare. We all know how complex healthcare is, and it's our job to be smart in this space. Imagine it for people whose specialty isn't healthcare.

Rae Woods (03:58):
Which is, I think, why employers rely a lot on brokers, which was a big part of our conversation last week.

Sophia Hurr (04:05):
Yeah, because employers don't know a lot about healthcare, they're talking to brokers. They're using these broker channels, and there's a lot of trust between employer and broker because those relationships are cultivated over years. And we spoke with a few employers actually who mentioned that they don't talk to providers, plans, vendors. They don't talk to anyone in the healthcare industry. They rely on brokers to kind of bridge that communication gap.

Daniel Kuzmanovich (04:30):
I'll throw another one out. This is hard.

Rae Woods (04:33):
Yeah.

Daniel Kuzmanovich (04:33):
Right? This is really hard. It is incredibly administratively complex. I actually go a slightly different word. You all used underestimated, right? People underestimate the employer. I'll be a little bit bolder and say I think we often overlook them. We completely forget that they are at the table. It reminds me of the film Moneyball when everybody kind of wrote off the Los Angeles A's or the Oakland A's. Which one were they at that point in time?

Rae Woods (05:01):
Oakland. Oakland.

Daniel Kuzmanovich (05:02):
Because they had just lost all of their best players, we overlook the role that the employers can play in healthcare, but they actually have a humongous amount of potential depending on certain factors.

Rae Woods (05:12):
But can we look at all employers the same way? Are all employers ready to be activated and take on this really proactive role in value-based care? Or do we need to kind of segment things out?

Daniel Kuzmanovich (05:25):
We absolutely can't look at this monolithically. I think we have to break it down into smaller components of types of employers.

Sophia Hurr (05:32):
And there are some factors that employers kind of have to have before they can even think about value-based care. So the first one is size. You have to have scale. You have to have lives to be able to influence value-based care. And secondly, employers have to be self-insured because fully insured employers rely on their plan to really decide those strategies and benefits. Self-insured employers have that influence that they can really make a difference.

Daniel Kuzmanovich (05:57):
These are a lot like your Monopoly moment. "Do not pass go. Do not collect $200." To Sophia's point, if you are not big and big enough to have scale, and if you are not self-insured and self-insured enough to have influence, then as an employer, it's probably better to be prioritizing your healthcare efforts elsewhere to get your bang versus your buck.

Rae Woods (06:18):
So I'm already kind of honing in on a subgroup of employers. I'm thinking the large self-insured employers, but even then, we still have a lot of variety, different industries, different geographies, different cultures, different ways to approach something as large as value-based care. So what factors do you want employers themselves to consider to determine what's their next move?

Sophia Hurr (06:41):
Yeah, there are a lot of factors here, but we've really identified two as the most important ones in determining VBC strategies and potential for success. So employee turnover, retaining your employees year after year really optimizes financial risk, and having a longer timeline is better for seeing that return on investment. That's so important for VBC. And then second, the geographic concentration of employees. So that will determine market influence, which is important for employers when it comes to partnership and scale.

Daniel Kuzmanovich (07:12):
Which is, I think, really powerful. It's not the industry. It's not the type of industry the employer works in. It's not some of these other things like where they are located. It's not their type of culture as an institution. It really comes down to those two. How concentrated are they, and how much turnover do they deal with? Those are the determining factors.

Rae Woods (08:42):
All right. I want to break down the market by talking about those two factors, turnover, and concentration. So let's imagine some examples here, and maybe you'll actually give me some real examples. What about an employer that has really low turnover? These are loyal employees who are going to be with that company for a long time, and they have the benefit of high market concentration. What kind of employer are we talking about, and what's their value-based care strategy?

Sophia Hurr (09:07):
So we're calling these employers the market-dominant innovators. These are the ones with the most potential for success in VBC, and this is because they have that market influence and that long time horizon, again, for a return on investment. And a good example of this archetype is Boeing, who we've been talking to for a while.

Rae Woods (09:26):
I was going to guess. Is this Boeing that you're talking about?

Sophia Hurr (09:29):
Yeah. So Boeing has traditionally engaged in a lot of direct-to-employer contracts. So they're working directly with providers in certain markets to build out products for their employees. They're now expanding their approach to include advanced primary care and full capitation. They're piloting something in Phoenix right now, and their goal is to improve the efficiency of care delivery and cost savings through full capitation, which they haven't traditionally been able to do with those direct contracts.

Rae Woods (09:55):
And to be clear, these are the market-dominant innovators that are most likely to succeed. Hence, why I immediately went, "Oh, yeah. She's talking about Boeing," which we've been talking about in the employer space for a long time now.

Daniel Kuzmanovich (10:07):
Boeing was doing very interesting things in healthcare in 2014.

Rae Woods (10:11):
Yeah.

Daniel Kuzmanovich (10:11):
Right? In 2014, they were doing a direct contracting deal with Providence. It didn't pan out, but they have continued to embrace value-based care as an employer strategy for responding to that affordability mandate. And because of their type of employees, low turnover, and their high concentration, whether it's in South Carolina, whether it's in the DC area, whether it's in the Pacific Northwest, they have the concentration and the turnover to really be this dominant market innovator as an archetype or classic entity.

Rae Woods (10:42):
And I feel like Boeing can get away with a lot of experimentation. Hence, you talking about their different strategy in 2014 versus in 2023. But most employers don't have the best of both worlds. Let's talk about someone that maybe still has low turnover, so those loyal employees but are not concentrated in a particular market or markets, in the case of Boeing.

Daniel Kuzmanovich (11:05):
We're referring to these kinds of entities as our national delegators. They, like the market-dominant innovators, have a long time to see the ROI that would come from a value-based care strategy as an employee, but they don't have the concentration. They're not dominant enough in one particular area to be able to try some of those same strategies.

Sophia Hurr (11:27):
So an example of a national delegator would be an airline. They have that time to see ROI, but they don't necessarily have the same level of concentration that a company like Boeing would. For employers in this bucket, they don't have those same kinds of relationships with local providers. So we're seeing these organizations work more with third parties that do have that national scale, so health plans or TPAs for network steerage and nationwide ACO contracting, those types of strategies.

Daniel Kuzmanovich (11:57):
A great example here might be UnitedHealthcare's NexusACO plan, which has generated a ton of savings in recent years.

Rae Woods (12:05):
I don't know about the two of you, but I'm a lot more concerned about the turnover problem than the concentration problem. I'm thinking back to conversations that I had with you, Daniel, on this podcast about commercial risk and if it's actually viable. And the turnover that we see in the employer marketplace is a big challenge because it's hard to have enough of a time horizon to get that savings compared to something like the Medicare population. So what about employers who are maybe concentrated in a market but have high employee turnover?

Daniel Kuzmanovich (12:39):
You're so right, Rae. I think one of the things that is a humongous challenge when it comes to value-based care, in general, is you need a longer contract. You need a longer time horizon. In Medicare risk, we typically see that contracts are five, 10 years versus your usual three-year contract that you might see in a more fee-for-service population. When you're dealing with high turnover rates from an employer, you don't have three years or even five years or 10 years to see those kinds of returns, so you've got to try something different. You've got to have a faster strategy.

Rae Woods (13:11):
And what is that strategy?

Sophia Hurr (13:13):
For these organizations that aren't holding onto their employees for long? They're going to be looking at those specific high-cost episodes. Centers of Excellence is a good option for employers that fall into this bucket. So they can either do this through partnerships with high-value providers or they can work with third-party vendors like Carrum Health.

(13:30):
So an example here would be Prudential has worked with Carrum to build out oncology Centers of Excellence bundles, which has allowed them to see an average of 11% per treatment episode in a really high-spend area for them. Employers in this bucket can also look to onsite or near-site clinics to really shift those sites of care and prevent really expensive ER visits. And then network steerage is also a strategy for employers.

Daniel Kuzmanovich (13:56):
One of my favorite examples here is what we've seen Walmart doing from Atlanta to its relationship with Cleveland Clinic. Walmart, high concentration in that region but also high turnover. So what have they done? They've created a direct contracting relationship on a short-term basis with Cleveland Clinic for knees, for hips, for spine. They're doing fast procedural stuff while those beneficiaries, those employees, are all in that concentrated area.

Rae Woods (14:23):
And they find that it's literally cheaper to send their employees to Ohio for their spinal procedures or spinal care, whether it's a surgery or not than necessarily go to any other place. That's the Center of Excellence.

Daniel Kuzmanovich (14:38):
Are you saying that just because you're from Ohio?

Rae Woods (14:40):
I always love plugging my home state.

(14:43):
So what if you have low concentration and high turnover? Are you screwed? Is there anything that you can do for value-based care if you're kind of churning through employees and you don't have the benefit of high concentration?

Daniel Kuzmanovich (14:55):
I don't think it's a can you question. I think it's a should you question.

Rae Woods (14:58):
Oh, interesting.

Daniel Kuzmanovich (15:00):
If you have low concentration and high turnover, I think an employer in that situation should really be asking, "Should I be doing this, or is there other juice that's more worth the squeeze?"

Rae Woods (15:10):
And what other things can they do if the answer is they should not get into value-based care?

Sophia Hurr (15:15):
These employers would probably look more towards regular cost containment strategies, so stop-loss insurance, cost shifting, that sort of thing.

Rae Woods (15:24):
We spent most of this episode talking about different archetypes of employers. But before we close, I actually want to zoom back out and talk about the employer landscape in general. What do you want employers of all kinds to be doing now to set them up for success, whether it's in value-based care or any kind of cost containment initiative?

Daniel Kuzmanovich (15:44):
The first and perhaps most important piece is to realize the stuck between a rock and a hard place principle that they sometimes find themselves in right now. On the one hand, costs are going to continue to rise for their employee population, and on the other hand, they are limited in their number of strategies that they can use to transfer or reduce those costs. Value-based care is one of the options they have, and they should actively be exploring if they meet the criteria we've talked about for minimizing that sense of being between a rock in a hard place.

Sophia Hurr (16:18):
And I'm going to get a little more specific here. I think employers also need to figure out how to engage their employees. When they're adding value-based care benefits to their offerings, they're adding benefits. They're adding different products and different options for their employees. And for their employees, it's often really difficult to decide, "Should I switch my plan and use this instead?" It's really confusing. So for employers looking to add VBC, you also need to figure out how to communicate that to your employees and make sure that they're engaged because, without engagement, you're not going to get any results.

Daniel Kuzmanovich (16:55):
Well, if Sophia's going to go specific, I want to add some specifics, too, as well. If that's okay?

Rae Woods (16:59):
Always.

Daniel Kuzmanovich (17:00):
The two that come to mind, right? The first one is the investment specifically in their administrative power and their data capabilities in order to track the ROI of these initiatives. There's a lot of potential, but they do have to invest in that ability to realize the potential of value-based care as from an employer lens. The other one, I would say, is just partnership. Partnership is a skill. And employers, part of what Sophia made such an excellent point around brokers and their reliance on brokers. Part of why employers rely on brokers is because they are partners. There are going to need to be other or different or new or evolved forms of partnerships if employers are going to embrace these types of strategies the way we've broken them out today.

Rae Woods (17:49):
Well, Daniel, Sophia, thanks for coming on Radio Advisory.

Daniel Kuzmanovich (17:54):
Thanks for [inaudible 00:17:55].

Sophia Hurr (17:54):
Thanks for having us.

Rae Woods (18:00):
Here's what I want you to take away from the last two episodes of Radio Advisory. Don't discount employers. They are a lot more powerful than you think, and they're starting to get more active in their goals of reducing costs. And remember, as always, we are here to help.

(18:24):
If you want to deepen your understanding of risk-based payments and its impact on every stakeholder, not just employers, I highly recommend you attend Advisory Board's upcoming summit on the new era of value-based care. This is happening in person on June 26th and 27th in Dana Point, California. You'll learn about where the industry is headed right now when it comes to value-based care, plus lessons learned from the last 15 years and actionable steps to make value-based care a reality for your organization. And by the way, while you're there, you can attend a live recording of the Radio Advisory podcast with me, Rae. We've added a link to our show notes.

(19:05):
As always, if you like Radio Advisory, please share it with your networks. Subscribe wherever you get your podcasts and leave a rating and a review. Radio Advisory is a production of Advisory Board. This episode was produced by me, Rae Woods, as well as Katy Anderson, Kristin Myers, and Atticus Raasch. The episode was edited by Dan Tayag with technical support by Chris Phelps and Joe Shrum. Additional support was provided by Carson Sisk and Leanne Elston. Thanks for listening.