Reform roadmap: addressing costs is only half the solution.

Often, companies facing skyrocketing health care costs address the issue through measures that nibble away at benefits, transfer some costs to employees or attempt to give employees greater personal exposure to the costs associated with their health care choices. But cost-focused measures like these address only half the problem, point out experts in the field.

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"You do have to focus on plan design to control discretionary demand, but you also have to focus on the supply side," asserts Tom Beauregard, global health management practice leader at Hewitt Associates, who explains that in addition to skin in the health care game, employees need quality-of-care data in order to make smart health care choices. "We want to be able to provide an individual having heart surgery with hospital system-specific information on efficiency and effectiveness, which can be defined as the frequency with which they provide this service and the clinical outcomes."

While data on effectiveness of care exists--particularly for "big-ticket procedures" such as surgeries and chronic condition care--it's often not aggregated into a report or simply not made available to companies or patients. But whether that's due to provider resistance or a lack of organization within the medical industry, it's an information gap companies can push to close. "Employers need to be absolutely committed to contracting with health plans that will provide us with data on physicians and hospitals so that we can present consumers with information on the price and effectiveness of care," says Beauregard. "There are immediate payoffs if you can identify the most effective providers for the four most common costly conditions in any given marketplace."

Ranking or rating the providers in a specific treatment category and market is just the first step in that process. Once effective providers are identified, corporate health plans should implement programs that both provide participants with incentives to use those providers and reward those quality care providers with payment programs commensurate with performance.

"What you want to do is run bad doctors out of business and strongly reward good doctors," says Diane Swonk, senior vice president and chief economist at Bank One, who advocates bringing more market forces into health care. "The reluctance of the health care industry to make information available through the IT available today is really a reaction to protect the mediocre. We can't protect mediocrity any more."

To counter naysayers who question the viability of a reform effort that banks on employees accessing and using health care provider data, Swonk points to a parallel in personal finance. "People whom the experts in that world thought would never buy mutual funds now sit down with an adviser or look at lists of what tend to be the most ethical and best performing funds and make investment decisions," she says. "We grossly underestimate people's willingness to make very educated decisions given the opportunity to have access to information."

"Quality drives costs," Beauregard explained. "We're in a model where there's tremendous variance of care, and between 30 to 40 percent waste in the system from a cost standpoint is due to hospital admissions as a result of errors by specialists. If we can define for someone in really simple terms which specialist and hospital they should use for a particular episode of care, that's where the savings exists. So, it's not just a patient safety and quality issue--it's a cost issue."

Hawaii, Serota added, is already serving as a test market of sorts for just such a quality-driven market reform. "The Blues have done a tremendous job with quality and incentive-based reimbursement there," he said. "They have created a situation where the only increases in physician and hospital compensation year over year are based on quality statistics. It's a closed system in that the physicians and the people aren't going anywhere else; there's a lot of water between the next available provider. But it shows that it can be done if you get everybody moving in the same direction and you don't say. 'Well, until we get this 100 percent perfect we're not going to do it.'"

In fact, for companies with a strong presence in relatively remote markets, the Hawaii model could serve as a prototype. A few big players willing to pool information have the ability to make their own island of efficient and affordable health care. "We have 7,000 employees in Kingsport, Tennessee, and in Longview, Texas," mused Eastman Chemical's Ferguson. "If in each of those ponds where we are a large frog we gang up with two or three other large frogs and work with an adviser, we could be a little Hawaii situation. If three of us get together, we've got 60 percent of the population."

Yet even in markets where quality of care data is available and accessible, it can be difficult for both employers and employees to act on the information. Within many communities, doctor's reputations and relationships with patients are deeply in-grained. "You have to be willing to say, 'I know Dr. X is your next-door neighbor and that you've been going to him for 20 years, but his outcomes aren't very good. You can still go to him, but you just have to pay, because it's not of the quality that meets the minimum threshold for our health plan.' Those are tough conversations," Serota noted. "But we're closer to making some big strides than we've ever been."

Consumer education about health care is also a barrier, added Serota, who pointed to a disconnect between health care realities and patients' perception of quality care. "We have a system that's misaligned," he noted. "Right now, people think that if they go to the doctor and don't get a prescription it was not a very good visit. If we can break the mind-set that quantity equals quality, we can make a difference."

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Mandate Mode

Already, progress on that front is under way. Thanks to the drastic rise in health care costs, recent years have seen employers and, to some degree, consumers gain a greater awareness of the inefficiencies, information gaps and cost-versus-quality issues plaguing health care.

At the same time, overcoming the inertia inherent to an admittedly inefficient but deeply entrenched system is no small challenge. Ultimately, it's the threat of government intervention that may well provide the sense of urgency necessary to overcome initial resistance and speed reform, noted Swonk, who added that while the status quo is unsustainable, changing the system will be a long and arduous process.

"No matter who wins the election, there will be a push for health legislation, because it is a crisis common to both sides," she said. "The concern is that we will end up with legislation that will have unintended consequences, which could actually mean less use of good practices. We've got to go through this corridor where consumers, providers and health insurers are going to feel the pain, going to see it. Then we'll reach a point where we're collectively working toward a better way to do this."

Will the private sector be able to develop and implement health care solutions before Congress steps in? The answer, Serota pointed out, may depend on just how proactive Corporate America is willing to be. "The clock is ticking on a private sector solution," he said. "We need to come together and find solutions to these health care cost issues lest we face government intervention in some form or fashion. But while we're solving these macro issues, there are small issues we can act on today. By taking steps to eliminate fraud in the system and other problems, we can fend off federal intervention as we craft a new approach that really realigns the incentives within the health care system."

The conviction that government solutions, such as mandates, simply wouldn't work was universal. Participants argued that the health care system is so complex with so many different players--companies, insurers, medical device makers, pharmaceutical companies, hospitals, doctors and others--that it will defy a public policy solution. The burning imperative, they agreed, is for CEOs to work to discover new solutions.