Michigan Purchasers Health Alliance September 20,2007 Readiness to Change Survey: Employers’ readiness to adopt value-based benefit strategies Larry S. Boress President & CEO Midwest Business Group on Health

Copyright MBGH Midwest Business Group on Health MBGH is a Chicago-based, non-profit coalition of Midwest employers working together to improve the quality and cost-effectiveness of health care for purchasers and the health status of their constituents. Founded in 1980, membership includes over 80 large, self-funded, public and private employers such as Abbott Laboratories, Boeing, City of Chicago, Kraft, Target, State of Illinois and University of Chicago. Member organizations cover over 2 million lives and spend over $2.5 billion on health care. Employers are represented by those responsible for designing and managing health benefits: VP of HR, Director/Manager of Benefits, Medical Director, Wellness Coordinator MBGH is one of over 60 coalitions in U.S. A member of the National Business Coalition on Health

Copyright MBGH MBGH Activities Buying Groups for Audits, Chicago HMOs, Disease Management, Incentive Programs; Worksite & Health Management Programs, and Pharmacy Benefits Health Benefit Strategy Pilots & Quality Initiatives “HPQ-Select” – Employer tool to identify how employees’ health impacts their productivity “Taking Control of Your Health” – an “Asheville Model” Diabetes Ten City Challenge pilot to determine if waived drug co-pays linked to pharmacist diabetic counselors increases diabetic patient compliance with treatments “Readiness to Change “ survey to determine employers readiness to adopt value-based benefit strategies Learning Network Programs on health benefit management, strategies and trends Networking & benchmarking health benefit roundtables Roundtables on pharmacy management, union benefits, wellness programs and CDHPs Medicare Employer Forum calls Health Plan & Health System User Groups

The Deterioration of the House of Benefits

Copyright MBGH Employers believe it’s time for an extreme makeover to their House of Benefits

Copyright MBGH Our house and neighborhood have been deteriorating Care processes are fragmented and confusing to patients; Access to care difficult for many; More are concerned about losing their health insurance than losing jobs or terrorist attacks; Uncertain value of new drugs and technologies; Low morale within provider community; Employees don’t recognize the real cost of health services; Few patients take responsibility for own health; Increasing talk of single payer system; and Serious and systemic quality problems exist

Copyright MBGH What happened? “The HMO – managed care strategy worked as long as new structures and incentives were at play. They were not sustained for the most part due to employers and government failing to compel HMOs to be accountable for their impact on patients’ health outcomes. There was a lack of a public oversight mechanism for the health system’s performance. Another factor was the inclusion of non-coordinated IPAs and discount-only PPO networks that weren’t designed or committed to manage care, only to manage cost.” - Paul Ellwood “As major purchasers of health care services, employers have the clout to insist on change. Unfortunately, they have also been part of the problem. In buying health care services, companies have forgotten some basic lessons about how competition works and how to buy intelligently.” - Michael E. Porter

Copyright MBGH How purchasers contributed to the problems Strategy missteps We were reluctant to direct employees to better performing plans, giving them the same contributions for any plan they selected We created an attitude of entitlement, rather than engagement We carved out services to obtain customized programs, better information and services, resulting in greater fragmentation and confusion in the health system, the loss of integrated data and poor coordination of vendor services We treated wellness as a fringe benefit, not an integral part of human capital management We expected employees would broadly participate in health promotion and disease management programs just because we offered them We treated health benefits as an expense, not an investment

Copyright MBGH We need an extreme makeover of our House of Benefits The new foundation is built on integration of data and maintenance of health The support beams: Engagement and incentives Self-management of health and chronic conditions Health management and wellness Health and quality information Transparency of physician, hospital, drug and procedure effectiveness and cost Consumerism

Copyright MBGH A renovated House of Benefits must address a business problem The business problem: Human capital costs Direct health costs = 1/3 of total costs Indirect costs = 2/3 of total costs Productivity  Absenteeism  Presenteeism Safety  Critical incidences  Poor decision-making

Technology Work Practices Management Practices - Quality Improvement - Training Health Status The Ceiling of Opportunity (Human Factors) Health Status

Copyright MBGH Has Intended Effect Saves ER $ ROI to ER Improves Quality No Neg. EffectOther Employee Contribution Strategy High-performance Networks Pay for Performance HDHP Rx Cost-sharing Health Promotion Disease Management Price and Quality Transparency Incentives to Activate Consumers Use of various benefit design features PwC study for California Health Care Foundation and PBGH

MBGH Readiness to Change Survey

Copyright MBGH Objectives of Survey Determine employer familiarity, understanding, use of and readiness to adopt various “value-based benefit design” (VBBD) strategies: Incentives for employees Pay-for-Performance programs Consumer engagement strategies Removing barriers to improve compliance with treatment Determine employers use and understanding of: The data required to see the total costs of health Health’s impact on productivity Adherence, compliance, quality and wellness programs Determine the key elements required for organizations to adopt new benefit strategies Identify what strategies or elements contribute to lower cost trends

Copyright MBGH Methodology Review of previous surveys and literature on VBBD to determine what strategies and experiences currently are being promoted or utilized Survey questions reviewed by Project Advisory Council composed of leading employers, coalitions, researchers, health plans and consultants Survey and reminder disseminated via by fourteen business coalitions to over 400 employers in various parts of country Results received from 163 employers Analysis conducted by MBGH staff Funding and research support provided by GlaxoSmithKline

Copyright MBGH Components of Survey Demographics of employer Cost trends from Positions on various benefit philosophies Data activities Perspectives and experience with value-based benefit strategies Perspectives on availability of quality information Sources and influencers of benefit strategy information

Demographics of Respondents

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Copyright MBGH If you’ve seen one employer… “Leading Edge” – 21% of respondents Employers willing to try new benefit strategies based on their perceived, yet untested, value “Careful Watchers” – 54% of respondents Employers willing to try a new benefit strategy once competitors adopt it or preliminary evidence of ROI exists “Conservative” – 25% of respondents Employers willing to try a new benefit strategy once it is viewed as an industry standard benefit design.

Copyright MBGH Characteristics of self-identified “Leading Edge” firms The organization is highly supportive of improving employee health Senior leadership is highly influential in designing health benefits They see a link between an employee's health and his/her productivity In addition to company data, they look to experiences of other “leading edge” firms and academic research to determine their benefit directions Health benefits are seen a necessary cost of doing business and an investment in human capital, with a measurable outcome

Copyright MBGH Percent of employers Employers’ Cost Trends

Use of Data

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Copyright MBGH % of “Leading Edge” firms integrate their data

The Value of Health and Related Benefit Strategies

Copyright MBGH Employer views on the value of health 95% of employers agree that there is a link between an employee’s health and their productivity 84% of employers believe that health benefits are a necessary cost of doing business 85% of employers view health benefits as an investment in human capital with a measurable outcome 75% of employers are highly supportive of improving employee health 62% of employers who view themselves as “Leading Edge” will provide cash or other incentives to motivate use of preventive services, compared to 40% of other employers

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Views and Strategies Around Cost-Sharing, Performance Information and Quality

Copyright MBGH Employer views on cost-sharing 53% of employers agree that increased cost-sharing reduces physician visits 75% of employers believe an employee’s health impacts their sensitivity to cost-sharing 94% of employers agree that employees need to know their out- of-pocket costs to make informed decisions to obtain health services

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Copyright MBGH Employers views on level of dollar incentives to change behavior

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Copyright MBGH Employer views on quality and cost 48% of employers believe employees have sufficient price information on prescription drugs to enable them to make informed choices 77% of employers agree that using drugs proven effective for a condition will reduce other services for that condition 60% of employers believe employees would change to better performing providers if they understood how quality varies and affects outcomes 70% of employers believe they should not pay hospitals or be billed for services provided due to preventable medical errors or infections, not related to the admission of a patient

Views on Incentives & Pay for Performance

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Copyright MBGH Summary Value-based benefit designs are being utilized by only a small percent of employers, primarily leading edge organizations Key leading edge approaches: Incentives for participation in wellness, DM and adherence programs Integration of cost and productivity data Enhancing the health of employees Major employer concern: Lack of quality and cost data on providers Adopting “leading –edge” strategies can be most effective in reducing cost trend and improving health of workforce Over two-thirds of employers do not collect or utilize productivity/presenteeism data Less than half of employers are integrating their data to determine the total impact of health on their populations Two-thirds of employers have not considered or are unwilling to use incentives tied to premiums to reduce smoking

Copyright MBGH Next Steps Follow-up survey to see if more employers are willing to adopt VBBD Drill down on some areas Expand number of employer respondents Develop programs to help “activate” employees and address health literacy barriers.

For further information… Larry Boress x1 Jessica Wesfhoff x2