By, Stuart Levine

A few weeks ago, I attended a regularly scheduled board meeting at a credit union.  The CFO was delivering his financial report that included the line item reflecting the cost for employee healthcare.  There was a discussion about this important issue and the impact it was having on the credit union.  Based on that conversation, it seemed to make sense to try to clarify some of the issues that can provide foundations for a greater understanding of this massive problem.

Regardless of the field in which you work, whether it be the credit union industry, another not-for-profit organization, the corporate world, small business or government, the cost of medical care has been growing and is projected to continue growing as a percent of your pay and of the gross domestic product of the nation. Currently, healthcare costs represent 18% of GDP, up from 12% just 10 years ago and projected to become as much as 25% of GDP in the next 10 years.  There is now a significant focus on reducing costs and gaining efficiencies through innovative solutions.

The American healthcare system embodies a structure that has made it difficult to control costs. Let’s call it the “health care triad”. To illustrate the situation, when you buy something, e.g., a car, a house, even a meal in a restaurant – there are three roles that you play and that you balance: the “Payer”, the “Purchaser” and the “User”.  If you go to dinner, you pay the bill, you decide where to go and what to eat, and you consume the food. You fill all three of the roles and the roles balance each other.  How would that change if someone else were paying the check? Imagine the result if someone else decided what restaurant you went to and what you would eat.  Imagine what the restaurant would serve if it knew you could order anything and you did not have to pay for it.

In many respects the American healthcare system is based on this triad.  And there are three different “people” playing essential roles:

  • The Payer: The vast majority of the health care expenditures in this country are paid for by insurers (about 85% of all Americans have some form of private or public health insurance)
  • The Purchaser: Doctors and other healthcare professionals make purchasing decisions.  Most patients essentially make only one decision regarding their healthcare, the selection of a doctor or service provider, such as a patient care facility associated with a hospital. Once a patient makes that decision, the medical recommendations for tests, treatments, medications and where the services are performed (often a hospital) are generally followed without consideration of cost.  Moreover, excessive care is not necessarily correlated with better outcomes.
  • The User: The patient is the consumer of these services, but for the most part, they do not decide, and usually are not capable of deciding, what services are received.  And, for the most part, they do not pay for what is received. In fact, the patient will often seek out the highest cost service, believing it correlates with the highest quality care.

The fact that these three roles are separated makes cost containment very difficult.

In addressing the first point, the “Payer”, there are a number of plans under discussion both in the political realm and within the medical insurance industry.  One idea, related to Medicare, for example, would replace the current pay for service model with a fixed amount given to each Medicare recipient that will allow him or her to purchase private insurance on exchanges in an open competitive market. Indeed, The Affordable Care Act will soon create exchanges for individuals and small businesses to purchase medical insurance from private carriers, with subsidies for lower income earners. The theory is that controlling and limiting what the “Payer” receives and encouraging competition among insurers will force cost effectiveness on the entire system. While competitive pressures could serve as an incentive for innovative approaches to control medical cost, patients and medical providers must be willing to operate under new paradigms for this to happen.

New paradigms are occurring. Some “Payers” and “Purchasers” are becoming a single “person”. Some insurance companies are acquiring hospital chains and some hospital chains also are becoming insurance companies. For example, in the Pittsburgh area, The University of Pittsburgh Medical Center, a $10 billion integrated global nonprofit health enterprise with 54,000 employees, 20 hospitals, 4,200 licensed beds, 400 outpatient sites and doctors offices and a $1.5 million-member health insurance division combined with commercial and international ventures,  is competing as an insurer and provider of service with Highmark Blue Cross Blue Shield, which is acquiring the West Penn Allegheny Health System (WPAHS), UPMC’s rival hospital network. This has the potential for doing more than “doing away with the middle man”. This paradigm shift can facilitate the development and implementation of new medical cost control approaches.

The drive for efficiency among medical providers is also leading to consolidation within the industry.  For many providers, consolidation can create a new entrepreneurial spirit that serves to communicate cost conscious best practices across an enlarged system while achieving economies of scale. Many believe that such consolidation will lead a drive for greater efficiency and cost containment.  Furthermore, the ACA has the concept of sharing best practices across organizations, with the Federal government playing a role.

So what are the implications for the “User” of medical services? A customer service, patient centered mentality can shift the focus of the medical organization. As in other sectors, there is a need to meet and exceed customer expectations. Outcomes must be measured. Employees at all levels must be engaged to deliver high quality service. Everyone in the organization must be accountable for the relevant performance metrics, which can include healthcare outcomes, cost containment and the satisfaction of the patient and his or her family.

As with any change, leadership is required. The values of the organization are paramount.  Leadership at all levels must assure that each patient is treated with dignity, as if the service providers were treating their own family members. The successful organization will assist its customers in navigating the complex waters of the healthcare system.

The “health care triad” may persist, but new and innovative approaches can bring quality service and cost effectiveness into the system.

As all citizens in this country engage in this conversation, it is important to drawer parallels to those leaders in credit unions who are committed to both their employees and their members.  There are lessons to be learned about the ongoing debate that are applicable to all of us:   1. Creating a culture that focuses on employee and member satisfaction is paramount;  2.  Ensuring ease of access to products and services for members will be an important differentiator for credit union institutions going forward; 3. Having continuous, healthy discussions around strong cultures based on values and efficiency will be critical to the future of the credit union movement.