When its employees are diagnosed with certain common cancers, Walmart offers a new option: a visit to the renowned Mayo Clinic, with the retailer footing the bill.
The collaboration, part of Walmart’s “Centers of Excellence” program, isn’t intended for everyone. Patient records are reviewed ahead of time, and selection is done with an eye toward treating those who could be misdiagnosed or mistreated by local doctors, or simply wouldn’t have access to cutting-edge care options back home.
More than 600 Walmart WMT, +0.60% employees have participated since the program was started in 2015, and 219 were chosen to go to one of three Mayo sites. Of those, 15% were given a different diagnosis at the medical center, which is ranked the top hospital in the country by U.S. News & World Report. Mayo doctors changed about 20% of patients’ treatment plans, came up with a plan for the 33% of patients who’d come without one, and made minor changes to boost the treatment plans of about 2% of patients.
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“These are associates who have been told they have cancer — they don’t have cancer,” said Lisa Woods, Walmart’s senior director of U.S. health care. “It could be a different type, [or] it could be that it’s metastasized. There’s so many different variations.”
‘Proved wrong’
The 3-year-old program focuses on three of the most common U.S. cancers: breast, lung and colorectal. Together, they are expected to make up an estimated 640,000 new diagnoses this year, or nearly 37% of 2018’s new cancer cases.
Because local doctors would likely have the most experience with those types of cancer, “I didn’t think we would change as many courses of treatment [as] we are,” said Dr. Charles Rosen, medical director at Mayo’s department of contracting and payer relations. “But I’ve been proved wrong.”
Hospitals realize that new models could help them improve both patient and financial outcomes, but ‘change doesn’t happen with the flip of a switch.’ Celina Burns, vice president at Vizient
Walmart, based in Bentonville, Ark., has a lot at stake. Some 1.5 million employees work at its more than 4,700 U.S. stores, making it the country’s largest private employer. Because Walmart self-insures health coverage for about 1 million employees, it has increasingly carved out a reputation as a health-care innovator. The employers, which tend to be large ones, that self-fund their health plans take on the financial risk of the health care of all their employees, rather than having an insurer do it.
As U.S. health-care costs increase year after year, many players are looking for ways to cut costs and improve health offerings. A headline-grabbing new initiative with similar goals from J.P. Morgan Chase JPM, +1.09% Amazon.com AMZN, +1.00% and Berkshire Hathaway BRK.B, +0.68% was announced earlier this year.
Direct contracting
Walmart and other companies including Boeing BA, +2.31% Lowe’s LOW, -0.37% General Motors GM, +1.72% Walt Disney DIS, -0.26% Amazon subsidiary Whole Foods and Intel INTC, -0.67% are increasingly contracting directly with health providers to over care for employees, in many cases at a flat rate. The approach, called direct contracting, represents a distinct break from the status quo, in which health services are mostly arranged by a health insurer on an employer’s behalf.
Walmart’s first partnership began about 20 years ago, with workers who needed organ transplants. Since then, offerings have expanded to spine and cardiac surgeries, joint replacements, cancer care and weight-loss surgeries. Most of Walmart’s programs cover all the medical claims in full, plus travel, and are largely paid at negotiated rates.
Walmart demurred on the question of whether the approach saves money, saying it would take time for the program to play out.
“When we went into this, it’s never been about costs. Because our belief was that we would see downstream savings,” Woods said. “We are seeing the impact by eliminating unnecessary surgeries and procedures.”
The way U.S. health care is priced and paid for is slowly changing, and direct contracting is one channel, termed value-based care or pay-for-performance, in that movement. The goal? Affordable health care with better outcomes for patients.
Wrong incentives
The U.S. health system typically uses a fee-based model, under which doctors and other players are paid only when they perform services such as office visits, procedures and tests. But creating incentives for more procedures doesn’t make for good medicine, critics have argued, and the system doesn’t reward keeping down costs or tracking patients outside of, say, the operating room.
Direct contracting is a potential solution, according to Walmart and other companies, and part of the overall value-based-care movement. Because doctors who participate in most of Walmart’s programs get paid a total rate for patient care, they are incentivized to do what will help patients get better, including, in some cases, not ordering any procedures at all, or holding off on a procedure until a patient is a better candidate.
That’s easy to get on board with, especially as U.S. health costs grow unsustainably. Health-care spending makes up almost a fifth of the U.S. economy, and spending increases have long outpaced inflation and price increases in other products. And who doesn’t want an improved value proposition? But progress has been slow going. Though in the works for decades, value-based care remains in its infancy, as such entrenched problems in the health system as poor communication among doctors, difficulties with electronic patient records and difficulty in measuring how patients are doing over the long term create barriers.
Taking control
That’s why some employers are taking the directive into their own hands, said David Lansky, chief executive officer of the San Francisco-based nonprofit business coalition Pacific Business Group on Health and chairman of the Health Care Transformation Task Force. The task force’s membership, which includes health insurers and health-care providers, among others, has committed to having 75% of its businesses in value-based models by 2020. But it is hard work, said Jeff Micklos, the task force’s executive director, with numbers this year showing overall progress toward the goal at just over 40%.
Direct contracting has become increasingly common among large employers in the Pacific Northwest, including the Pacific Business Group on Health’s members, and in the Boston area. The Pacific Business Group on Health also now offers a direct-contracting program for spine surgery, orthopedic surgery and bariatric surgery, Lansky said. How the programs share costs with employees depends on the company, he said, but many have chosen to make it low cost as an incentive for participation. The group plans to offer a cancer program modeled on Walmart’s starting in early 2019.
A flat payment for a medical procedure sounds simple, but it’s tricky. Payments typically cover a certain time period, such as 90 days, and encompass all the services that are related to the procedure, including complications. Knee and hip replacements are common for this type of model because they are predictable, and expensive, procedures.
Those and other direct-contracting opportunities had to carry high enough cost and health concerns “that it was worth putting together this type of program,” Lansky said, “but also where there were known variations in quality and cost.”
Limitations and risks
The model doesn’t work for everything. Emergency procedures might not qualify, for example, because of the travel involved. Walmart’s cancer program is another exception. Some of its services are paid for at a negotiated, bundled rate, while others use a fee-for-service model because of how wide the variety is among patients, Walmart said.
The all-inclusive cost model also presents clear financial risks for health providers, since they get paid the same even for complex medical scenarios. But variation does exist within the value-based-care movement. Another payment structure is called “gainsharing,” because doctors and hospitals have financial incentives to reduce costs, but they don’t carry risk in the opposite scenario.
There are doubts about whether value-based care can accomplish its lofty goals, especially if it requires new levels of bureaucracy and, therefore, adds costs to an expensive health system with plenty of red tape as it stands. Concerns about potential discrimination against old and sick patients, whose health care is more expensive, remain unaddressed. Elsewhere, public and private attempts at bringing down U.S. health costs have faltered for decades, which could well be value-based care’s largest problem.
At hospitals, for example, most revenue is still made the old-fashioned way: fee-for-service, through health insurance provided by for-profit companies, as opposed to government programs. Value-based payments consist of only 5% to 10% of a hospital’s revenue on average, according to Celina Burns, vice president of value-based-care strategy and program development at Irving, Texas–based Vizient, a health-care performance-improvement company. She works to develop those offerings for the company’s hospital members.
Hospitals realize that new models could help them improve both patient and financial outcomes, but “change doesn’t happen with the flip of a switch,” Burns said.
Complications include planning for when patients leave the hospital, especially to see that they follow a prescribed treatment plan. Different doctors involved in a patient’s care also must coordinate consistently — something that has not been a strength of the U.S. health-care system.
Medicare has driven most of the U.S.’s value-based payment models, many experts said. ChenMed, a privately held health-care services company with centers located in seven states including Florida and Pennsylvania, provides primary care to seniors insured through Medicare Advantage. The company is paid a fixed amount to take care of patients — the average patient is 76 years old with five chronic conditions — and manage their health, said Dr. Gaurov Dayal, ChenMed’s president for new markets and chief growth officer.
A condition like congestive heart failure, for example, can be managed cost-effectively by working closely with a doctor, he said. ChenMed, based in Miami Gardens, Fla., aims to have doctors see patients once a month and provides other services around that goal, including a shuttle, a pharmacy in the clinic and on-site imaging.
Inevitably, though, patients do get sick, and ChenMed pays the bill. Its model therefore relies on a mix of healthy and sick patients over time, Dayal said, noting that new centers may take a few years to become profitable.
“If every one of our patients goes to the hospital this morning, we will go out of business. We can’t afford it,” Dayal said. At the same time, he said, “we have been doing this for three decades. It is not, in a good way, rocket science. The patients are the same everywhere, and have the same issues. We have a very prescriptive, well-defined model that works.”
A better mousetrap
Another company, Archway Health in Watertown, Mass., works more with specialty doctors, both through Medicare and, more recently, with employers, managing their spending across varied specialists. Contracts reward doctors for doing a better job, but they are also on the hook if a patient is readmitted to the hospital, has a complication or needs physical therapy, Archway Chief Executive Officer Dave Terry said.
“You see a tremendous variability in price that hospitals will charge for various services,” Terry said, but “in many cases price variability is not linked to quality or outcomes,” and often doctors involved aren’t aware of how much an entire course of treatment costs.
Archway uses data to identify the best medical providers — specialists who have “developed almost a better mousetrap, if you will, or a better process, better model for their patients,” he said — and to help advise on decisions about what treatments might be most effective. The company has worked in joint-replacement surgery, spine procedures, cardiology procedures, many kinds of cancer and pulmonary diseases, and is starting to do more work in obstetrics.
Archway’s work requires close collaboration with specialists. For example, to reduce how often cancer patients go to the hospital, patients who call a support line are given a plan developed with a doctor laying out the best course of action in a given situation. In other scenarios, such as after a knee surgery, though medical literature says patients should be in touch with a primary-care physician, an orthopedic surgeon might not prefer that because primary-care doctors aren’t trained for that scenario, Terry noted.
Ultimately, though, the CEO said he’s not surprised by who has been pushing new payment models forward, as employers like Walmart have the most at stake.
“Who’s responsible for the health-care dollar? First in line is Medicare. Next in line is self-insured employers, or just employers,” Terry said. “We’re seeing more interest from employers than health plans.”
Emma Court is a reporter covering health care for MarketWatch.
