Mitigating the cost of healthcare expenses has long been an uphill battle for employers, though the problem has become particularly pressing in recent years. The price tags for routine treatments and specialty services alike are on the rise; patients and payers alike shoulder heavy cost burdens for everyday care needs. The benefits packages that may have provided sufficient coverage a decade ago are now stretching to cover costs — and the companies paying out those benefits are desperately searching for new ways to deliver higher-quality and lower-cost care to their employees.
Of all the companies searching for innovative solutions that will reduce avoidable costs, improve outcomes and better care experience for patients, Walmart is a clear leader.
At the close of 2018, the retail giant announced its intent to expand its current “Centers of Excellence Program,” which creates partnerships between Walmart and exceptional healthcare institutions as a means to provide affordable specialty care to its employees. When Walmart debuted the initiative in 2012, it offered employees full coverage for otherwise costly heart, spine and transplant surgeries — provided they had their procedure at one of the company’s six partner sites. It was an extraordinary offer, especially given the company required no co-pay and offered to pay for the travel and lodging expenses of both the covered patient and an accompanying caregiver. Shortly after news of the program broke, one spokesperson for the company estimated that employees who received care at the partner facilities would save anywhere from $5,000 to $12,000 in out-of-pocket expenses, depending on their procedure.
The potential for cost-saving has only expanded since the initiative’s implementation. Today, Walmart’s Centers of Excellence program has grown to encompass 15 medical care partners, all of which specialize in one or more treatment niches. These additions include nationally-recognized providers such as Johns Hopkins, the Mayo Clinic, the Cleveland Clinic, and Emory Healthcare. With these new partnerships, Walmart was able to grow its treatment offerings beyond transplantation to encompass oncology services as well as specialized spine, heart, knee, and hip surgeries.
But how can Walmart afford to cover so much, for so many? As it turns out, the retail giant’s seemingly game-changing plan design is a new spin on an older model.
The term “Centers of Excellence” has been around for years. While the COE label isn’t tied to any set certification, it does refer to healthcare institutions that have unusually high concentrations of expertise, talent, and resources relating to one or more care disciplines. Areas of excellence include but are not limited to fields such as neurology, cardiology, oncology, orthopedics, and orthopedics. The enhanced quality of care these centers provide tends to facilitate better patient outcomes, which in turn boosts efficiency for the provider facility as a whole and further lessens costs for patients and payers.
Payers recognize the better outcomes and lesser costs as an advantage; historically, insurers have directed enrollees that need highly specialized procedures — organ transplantation being an example — to centers of excellence as a way to control costs by avoiding care inefficiencies. COEs, for their part, are often willing to offer discounted prices in exchange for an increased influx of patients.
In theory, incorporating centers of excellence into an employer’s coverage network is a no-brainer. The employee receives better care, the employer doesn’t have to spend as much on their healthcare benefits, and the partnered hospitals can take in more patients. Employees should, by all logic, want to take advantage of having access to top-quality care.
Unfortunately, the reality of COE integration is easier said than done and doesn’t always work out so easily.
Generally speaking, there are two primary ways that employers can incorporate COEs into their healthcare offerings. First, they can offer access to specialized care centers as a supplement to their broader provider network. With this approach, the higher quality of care serves as a “carrot” that gently incentivizes enrollees to choose the lower-cost COEs when they need specialized treatment.
However, Centers of Excellence have one major catch — they require patients to travel beyond the care centers they use for routine concerns. For some enrollees, the benefits of choosing a COE might not be worth the added time and hassle of having to coordinate and pay for a trip to a specific facility. Even the cost-savings that are so significant for employers might not be all that attractive to the patient, given that the variations in provider prices are usually well above their out-pocket-maximum. For enrollees, the most logical choice may be to go to the most convenient care center, rather than the COE their employer expected them to choose.
The second integration method relies more on “stick” policies to drive enrollees towards cheaper COEs. In this case, employers can designate the COEs as the only covered providers for specific services and refuse to cover any charges incurred for services performed at any other hospital. This approach protects the employer from having to pay for more costly services at other facilities; however, it also places a greater burden of responsibility on the enrollee to travel.
Neither approach, by itself, is without its concerns — but Walmart has managed to meld the two into a cohesive and convenient whole.
Earlier this year, Walmart announced a new policy that would require plan participants who need spine surgery to travel to one of eight partnered COE facilities. This mandate marked a shift from their previous rules, which like the “carrot” approach outlined above, allowed enrollees to choose non-COE facilities for spine surgery. The change was made for a reason; according to the retailer, a full 50% of employees who received care at COEs were able to avoid the costly procedure altogether. However, because Walmart maintains so many COE partnerships and continues to cover the cost of travel and lodging for employees who need specialized surgery, their policies do not place an undue cost and logistical burden on those that receive care. They incorporated both carrot and stick into their approach — and as a result, their benefits package is cost-effective and of high quality for everyone involved.
Now, Walmart’s benefits design isn’t necessarily one that all companies can replicate. The retail giant has the resources necessary to both build an expansive COE network and cover their employees’ travel costs; many other companies don’t. However, Walmart’s model is one that other corporations could potentially emulate if it continues to perform well — it may even come to define how large employers approach healthcare benefits design over the next decade.
About the Author
Lawrence Leisure is the Co-Founder and Managing Partner with Chicago Pacific Founders, a strategic healthcare investment fund that centers exclusively on health services. Larry has well over three decades of experience in the health and managed care industry and additionally served on the board of directors of several Silicon Valley health information and bioscience companies including Crescendo Bioscience, Jiff, Seriosity and Redbrick Health.
