Edgardo Tenreiro, CEO of Baton Rouge General, says the “dirty little secret” in health care is that there are significant price differences among hospital systems and physicians. Put simply, some charge more than others.
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The good news for self-insured employers? They can exploit those differentials to lower their premiums.
To assist in that effort, in 2003 Baton Rouge General founded Verity HealthNet, a subsidiary that currently works with about 100 self-funded commercial employer groups across Louisiana—such as LSU Health and LCMC Health in New Orleans—comprising nearly 100,000 people.
Verity is a “narrow network” health plan that limits coverage to a smaller, curated selection of more than 9,000 physicians and approximately 200 facilities across Louisiana to provide in-network coverage for its members, resulting in lower monthly premiums and deductibles.
“They put all the pieces together and work with the employer and broker to teach them how to access the low-cost providers,” Tenreiro says. “That can create a 20% to 30% savings over a traditional broad network.”
As with other self-insured approaches, a third-party administrator and pharmacy benefits manager play important roles in the process.
“You’re managing the risk, but more importantly you’re exploiting price differentials between high-cost and low-cost providers,” he adds. “If you move your employees from high-cost to low-cost providers, you’re going to save money.”
It’s a win for everyone, says Kendall Johnson, CFO at Baton Rouge General, as the hospitals and physicians participating in the program are guaranteed that a participating company’s employees will use their facilities.
However, the engagement of a company’s leadership is essential to implementation. That’s often a hurdle, as many fear that transitioning to a narrow network will lead to employee dissatisfaction.
“The problem is that employers aren’t educated about the benefits,” Johnson says. “They’ve got to understand that they could immediately save 10% to 30% of their health care costs—it’s not something that’s going to take five years.”
To alleviate management concerns, the program could be phased in the beginning. “If you’re worried that moving to such a plan would alienate some employees, you can tier the network—maintaining a broad network at a particular co-pay and co-insurance level and a narrow network with no co-pay and no co-insurance,” Johnson says. “What will happen over one to three years will be a migration of employees from the broad to the narrow network because of the cost savings.”
Ultimately, the savings will be significant enough that the employer will likely be able to absorb the co-pay and co-insurance costs and not have to pass them on to employees. Says Johnson: “That’s how you make the recipe work.”
