Relying only on network discounts misses cost-saving opportunities

Network discounts generate a lot of attention in discussions of how employers can control health care costs. However, without looking deeper and analyzing other cost levers, employers could be missing opportunities to more effectively manage their total cost of care — while improving health outcomes for employees and their families. 

“If employers take away anything from this discussion, it’s that network discounts are not the sole determinants of total costs,” says Dave Lardieri, Regional Vice President, Client Management with UnitedHealthcare National Accounts.

Leveraging robust data and analytics can help employers and their employees use their plans as efficiently as possible — potentially resulting in a lower total cost of care regardless of how favorable an upfront discount might be. Opportunities for cost savings and efficiency include:

• Guiding employees to seek quality physicians who focus on generating outcomes based on their specific conditions — which can lead to lower costs.
• Recommending the most appropriate site of care for specific employee needs.
• Providing engagement strategies that drive participation in clinical and wellness programs.
• Looking to value-based contracting not only for cost efficiency, but to align providers and employees on the shared interest of better care and outcomes.

Look deeper than discounts to manage total costs

Relying on network discounts to understand an employer’s true cost picture is difficult because the discount’s calculation is often based on past spending. This is part of what makes contracted discounts look so enticing, as they’re applied to retroactive health care activity, potentially inflating their value. It’s difficult to know how these discounts will play out in the future, and it’s easy to overlook the effectiveness of key strategies that may reduce, redirect or eliminate some claims entirely.

“When discount rates are used to predict employer health care costs, the calculation is subject to the inherent fallibility of basing future costs on past spending,” says Ernie Bourassa, Vice President of Network Solutions for UnitedHealthcare National Accounts. “What was paid out in the past will almost certainly not match costs in years to come. And by necessity, projections are made looking at claims data that lags two or more years in the past.”

Lowering the total cost of care is about finding the right combination of price, utilization and quality, and supporting it with an effective mix of guidance, tools and resources.

Discount-based analytics typically do not consider appropriateness of care, site of service and clinical effectiveness — all factors that help improve the quality and reduce the cost of care over time. For example, network discounts may apply to emergency room visits for conditions that may be better treated in another setting, or the discount may apply to an inpatient admission for a member whose chronic condition was unsuccessfully managed.

"The application of a contracted discount is one of the last steps in the health care chain,” Lardieri says. “Once a provider has billed for a claim, it’s too late to take steps that may have better supported the member’s health and experience."

Key strategies for employers to manage their total cost of care

There are typically 3 areas of focus for total cost of care strategies:

1. Design: Includes plan structure (e.g., PPO, CDHP, HSA) and member cost-share, or the actuarial value of the plan. Design also covers out-of-network and network coverage, network narrowing and Accountable Care Organization (ACO) enrollment. This also scores tiered benefit designs to promote the choices of quality providers and Centers of Excellence (COEs) based on a member’s condition.
2. Clinical: Includes all features of the clinical model, nurse support, pharmacy and behavioral benefits integration, as well as rewards and other well-being resources.
3. Engagement: Includes strategies focused on employee engagement in clinical and well-being programs, among other elements of a plan. Engagement can result in cost savings, as demonstrated by UnitedHealthcare’s Health Activation Index™ (HAI^TM) tool. The tool measures employee health decisions and how those decisions impact engagement, productivity and, ultimately, costs. UnitedHealthcare has found that increasing an HAI score by 1% can lower medical costs by .56%.¹

Value of a strategic approach

For example, consider an employer that left UnitedHealthcare for a competitor, primarily because of that competitor’s network discount. After 2 years of realizing rising utilization costs, the company returned to UnitedHealthcare and saw:

• Hospital admissions drop from 70 to 48 employees per 1,000.
• Although the average length of stay rose slightly, bed days dropped from 294 to 254.
•  Emergency room (ER) visits decrease from 340 to 193 employees per 1,000.²

Another example outlines the short- and long-term savings of a more strategic approach, even when a carrier’s discount may be lower than the competition.

These examples demonstrate how these strategic variables can drive lower costs and better outcomes. Network discounts do achieve cost savings when viewed through narrowly defined parameters. A lower contracted rate is just that: a lower contracted rate. However, their scope is extremely limited. True trend control happens when multiple cost levers are addressed together.

For more information, reach out to your consultant, broker or UnitedHealthcare representative.