Employers and Health Innovation: Will They Go Long or Advance One Yard at a Time?

Last week I had the honor of being asked to moderate a panel on cardiology innovations at the first Innovation Day meeting of the Pacific Business Group on Health (PBGH).  For those of you who don’t know PBGH, they are a San Francisco-based organization founded in 1989 that has 60 member companies comprised of large employers providing health care coverage to over 10 million Americans.  This is not your mom and pop crowd; companies involved in PBGH are those like Bechtel, Safeway, CalPERS, PG&E, WalMart, Exxon, Cisco, Twitter, Facebook, Intel, GE, McKesson…the everyday names everyone knows.  PBGH helps them think about healthcare policy and how to implement logical health benefit strategies that meet their corporate objectives.

The idea for the meeting, designed by Amanda Goltz, Senior Manager Director of New Initiatives for PBGH, and Aaron Apodaca, a San Francisco-based consultant who works with investors, foundations, and health and technology companies, was to engage large employers and the payers with whom they work to engage directly with entrepreneurs/innovators and venture capitalists in a discussion about new approaches to tackling employee benefit issues such as diabetes, cardiology, and other health problems that lead to high costs and absenteeism.  10 young innovative companies* with solutions in these areas presented to the crowd of about 60 employer representatives; Chief Medical Officers and other senior executives from 5 of the nation’s largest health insurance companies were on hand to comment on the companies’ ideas and to engage in a discussion among the innovators, the employer representatives, and the hangers on there from the VC investor world.  It was an interesting mix of people–one that rarely sits in the same room at the same time.

In fact, it is very unusual for young medical device and diagnostic companies to interact with the employee benefit people who actually sign the checks to buy what these companies sell.  Under normal circumstances, the money these the medical device companies receive first travels through the hands of the employer, payer, and provider organization before it hits their bank account.  Rarely do medical device companies communicate directly with those who actually speak for the consumer of their products.  Even stranger, one rarely gets to observe the repartee that occurs between payer and entrepreneur and employer all at the same time–it’s like looking behind the curtain at Wizard of Oz central.  Having worked in the healthcare field for nearly 25 years, I have never seen quite this discussion.  I was happy to get to be a fly on the wall (and for a brief while on the podium).

David Lansky, PBGH’s CEO, said they had created this event because, “Employers want more disruptive ways of achieving healthcare cost goals.”  He also added that PBGH and its employer members’ hopes that health plans would fix their problems have faded and thus they have to take matters into their own hands.  He stated that employers’ key issues are:

• concern about the effectiveness and sustainability of today’s health care system; frustrated that cost of care is unrelated to quality
• belief that current tools – consumer-directed health plans, pay-for-performance, quality measurement – are having little impact
• a sense that most delivery systems and health plans are slow and timid in seeking efficiencies and improving quality; and,
• a recognition that health reform is unlikely to slow cost increases

Added Larry Leisure, an Operating Partner at Kleiner Perkins who has worked in around the health benefits field even longer than I have, added, “Employers should be the catalyst for innovation turned into action to achieve the Triple Aim.”

But what became evident to me as I listened throughout the day is that there is still a pretty good-sized gap between what employers may ideally want to do and whether they really want to step up and own the job of catalyst.   In particular, I was struck by how prophetic a comment Dr. Arnie Milstein, Stanford professor, health benefits expert and PBGH Medical Director, made during the introductions, saying that despite the need to manage costs, “Employers have limited bandwidth to take on too many innovation at any one time.”  While PBGH’s members have an overall strategic goal of reducing health benefit inflation to CPI+1% by 2015, by the end of the day it was pretty obvious that they can and will bite off only so much.

The employers in the room made it clear that diabetes, cardiology and spine costs are the 3 horsemen of the health benefits apocalypse and that everything else was pretty much beyond their ability to think about.  Remember that old poster of the U.S. as seen through the eyes of a New Yorker, where NY is huge in the foreground and everything else was either New Jersey or the Pacific Ocean?  A good metaphor for their mindset.

Innovative medical device, diagnostic and wellness companies present at PBGH Innovation Day to pitch ideas about sinusitis, sleep apnea, fertility, asthma, wellness games, etc. were interesting and all, but seemed to barely rise to the level of attention when compared to the varsity league.  The vendors there to discuss new screening and interventional tools or wellness apps to help weed out the unnecessary diabetes and cardiology treatments got some attention, but anything that was discussed under the category of “managing absenteeism” or around other medical conditions got far less mind share.  Good thing there wasn’t a company in the room promoting hearing loss interventions, as it would have fallen on deaf ears.

One employer said, “It is a real uphill battle for 2^nd tier medical issues to get attention.” Another said, “We can’t measure absenteeism or how much bad sleep costs us so we don’t spend too much time on it.”  Another added that Facebook probably led to more time lost in the workplace than did healthcare-related absenteeism—a provocative thought (it didn’t come from the Facebook representative, natch).

Employers also made it clear that they expected their payer colleagues to screen innovations and figure out what was worth adopting—that the employers themselves don’t want to be stuck worrying about product evaluations they feel ill-equipped to evaluate and that are, as far as they are concerned, basically not their table.  They voiced frustration about the speed and efficiency with which this process has occurred on the payer side.

The payers (represented at this meeting by Aetna, United Health, Wellpoint, HealthNet and Cigna) clearly want to pay for innovations that may save money only after the innovators themselves have paid for independent proof that their new products and services could deliver improved quality at reduced cost.  While payers were willing to try a pilot here and there, they were much more interested in adopting a sure thing, thus raising the bar for adopting new innovations higher than the gates of Troy.  And this made it seem like the times, they are never gonna be changin’, that innovators would be talking to the hand, as it were, and that this would deflect these innovation vendors back to employers as they seek an audience for their new wares.

This bounce-back strategy, however, is not likely to meet success, the employers said, because they are tired of interacting with a hodgepodge of narrowly-focused vendors and want the carriers to stitch these programs into a ready-made quilt for them.  “Is it really an employer’s job to buy all these apps for employees? Why don’t we just give them an allowance and let employees deal with it? Let’s give them an allowance and an exchange where innovators can sell to them directly.”  Innovators: welcome to your ping-pong game.  You are the ball.

The bottom line according to the employers?  “We only want to pay directly for things when the health benefit cost return on investment (ROI) is very tangible; intervening in lifestyle issues is not an employer issue.”  And by tangible they meant not just real, but timely.  One employer described how a $700 incentive paid to employees to encourage them to stop smoking had a 7-10 year payback and questioned whether it was really worth it, particularly since that employee was unlikely to still work there 7-10 years later.  In case you are wondering what employer expectations are when it comes to new innovations, Dr. Milstein laid it out for the audience.  Innovations worth adopting should have:

• A low implementation burden (time and cost) relative to plausible advantage gain;
• Independent impact evaluations, funded by the innovator, to justify adoption and continued use;
• Results-based pricing, including zero pricing when an innovation is ineffective; and,
• An overall result of fewer treatments per person, fewer services or product inputs per person and/or less cost per person.

Furthermore, the employer audience noted that physicians are the ones that have to be engaged in this discussion since they are the real gatekeepers between the employees and what medical products really get used.  ‘We can say we will or won’t pay for things but we’ve been doing that and strong-arming through the payer side for years without success.”  The conclusion from this discussion was that payment reform was key to reducing health benefit costs.  Without true alignment of financial interests, change is out there grazing among the unicorns.

This orientation has led certain pro-active employers to cut out the payer middleman (at least in part) and go straight to the heart of the delivery system to fix their health benefit cost woes. WalMart, a company that has the conveniently appropriate tag line of “Save Money, Live Better,” is clearly intent on making sure its health benefit activities live up to this slogan, and have just announced an innovative Centers of Excellence program in which they will direct all heart, spine and transplant surgeries to 6 selected providers (unless patients are too ill to travel).  If and when WalMart’s 1.3 million U.S. associates go to these providers for such services, WalMart will cover 100% of costs and associates will bear $0 in expenses.  Go elsewhere and buyer beware.  This is WalMart’s way of saying they are tired of suboptimal outcomes but are willing to pay well for good performance, selecting the Cleveland Clinic, Geisinger, Mayo, Mercy Springfield, Scott & White Memorial and Virginia Mason for its small network.

This is an interesting deviation from past approaches that have favored consumer choice.  If PBGH’s participants are any indication (and I think they are since they represent over 10 million covered lives), they appear to care more these days about value for their healthcare dollar than consumer convenience and choice.  And who can blame them?  They also voiced a feeling that employers themselves are better at wielding leverage with the delivery system and that payers have lost this fight in their battle to please too many constituencies.  On the other hand, employers also recognized how hard it is and will continue to be to positively communicate to their employees about this tightening down of the network—that employees are as suspicious of their employers as they are of the payers.  Said one, “We are seen as the rule-makers and the take-awayers.”

The challenge for employers is fairly profound, as it was noted that employees spend an average of less than one hour selecting their health benefit plan options and that most people select their doctors and hospitals based on proximity to home or referrals from a friend, not quality, cost or anything else the employers perceive as essential to better ROI.  Employees are as resistant to “yet another app” as are their employers, and employees’ ability to be part of the solution instead of part of the problem lies in their perceived sense of personal accountability outweighing their sense of entitlement, according to a benefits consultant present at the meeting.

What seemed clear to me at the end of the day is that more collaboration between the players in the room is essential if real change is going to happen.  Payers, employers, innovators and providers need to figure out how to work collaboratively if we are going to advance the ball more than one yard at a time (I’m moving from baseball to football analogies in honor of Fall).  Staying in a world where payers want to keep the castle gates closed as long as possible, employers want to stay out of the fray, providers don’t want to be told to perform and employees don’t want to be accountable is not a prescription for change.

As someone who works most closely with the innovators/entrepreneurs, particularly those in the medical device and diagnostic space, it is time to get to know the real payers, the employers.  Don’t approach them to sell your wares, but to learn how they think about the problem you are solving, whether they think about the problem you are solving, and how you might jointly approach payers with mutually beneficial opportunities to collaborate (mostly on your dime).  You are going to have to come into the light, where economic studies reign supreme and where you can’t get away with the bare minimum of clinical evidence to get attention.  You think the FDA is tough?  They aren’t paying.  The employers are and they are running out of cash and patience.  But what they want is clear:  simple to implement innovations that result in healthier employees and lower cost per employee when they pay the benefits bill.  Seems reasonable to me.

*presenting companies included Omada Health,  Tethys, Keas, WellDoc, CardioDx, HeartFlow, AliveCor, Asthmapolis, Auxogyn, IntersectENT, ApniCure, Lumoback and Sleep HealthCenters.