Here’s a scenario for you to ponder. A small manufacturing company’s healthcare costs have been rising at a 19.6% rate per year over the last 5 years. The tragedy is that this employer-owned organization is paying much more per employee on healthcare costs than a large organization! This could be saved and re-distributed to the employees, if they knew what risk factors drove their healthcare costs and what actions they could take to reduce those risks.

Employers do not have access to data that is required to take action when it comes to healthcare. Even if they do, the data is so complicated that it becomes an overwhelming task to analyze it. It is time for employers to understand their healthcare risk and cost drivers, understand which programs are and are not delivering value, and then use financial and clinical benchmarks to prioritize actions.

We have spent the last three years conducting research, analyzing data and talking to experts to understand what are the most common risk factors and cost drivers, and how to manage these risks. These factors are the following

  • Program ineffectiveness (across engagement and outcomes)
  • Declining population health
  • Non-optimized pharmacy spend and variability in drug costs
  • Overuse or misuse of emergency room
  • Unmanaged chronic conditions
  • Gaps in preventive care
  • Under-managed complex cases
  • Increasing population health risk

We discuss each of these factors in brief.

Program ineffectiveness and declining population health

Which members of your population are not engaging in the programs you have in place for them?

Program effectiveness is driven by engagement. This is not only important to reduce your healthcare costs but also improve overall employee well-being. It is not enough to enroll your employees in (for example) a wellness program, but is also imperative to monitor behavioral triggers to know that the plan is working.

Medical predictive analysis has the potential to impact your healthcare costs in many ways. If you know which members are currently doing well but are on the verge of acquiring one or more conditions based on data analytics, you can use this information to drive an intervention. An advanced predictive analysis tool can help you see the bigger picture. For example, your wellness program, armed with the knowledge of who is at risk for coronary disease, can tailor their coaching program specifically for those members at risk, and have a positive effect on reducing chronic artery disease (CAD) in your population.

Non-optimized pharmacy spend and variability in drug costs

Are your prescription drugs higher than the benchmarks?

Variability in drug costs is due to a variety of reasons, including brand over generic use, retail over mail order use, specialty drugs, as well as price markup for generics and mail order and rebates that have not been passed on to the employer. The actual components vary widely among employers.

With market consolidation and acquisition in the carrier space, carriers through ownership of their own PBMs use the opportunity to mask the ‘true price’ they are paying or rebates they are receiving. This results in less negotiated savings and rebates that are passed on to employers.  Many maintenance medications are in this category, and often employers and employees pay a higher cost for these than they should.

With the ever-growing number of specialty drugs, employers have seen six-digit increases in their Rx cost. Employers need to understand how much of their total pharmacy spend is being impacted by specialty drug costs, and put in mitigating programs that can address some of the price factors.

Actions that can be taken include updating incentives to drive the use of generic drugs; updating incentives to drive use of lower cost channels; negotiating lower prices (manufacturer discounts) for specialty medications; and carving out PBM from the carrier.

Overuse or misuse of emergency room

Are your employees using the emergency room for non-threatening conditions?

Substantial costs are spent each year on members who use the emergency room for otherwise avoidable visits. For example, for one of our clients, 39% of those who visited the ER more than 2 times this past year did not have their recommended preventive medical exams. Educating the employees and having an effective outreach program can substantially reduce these “non-well” visits to the ER.

Through our data, we have seen that the top conditions that are presented for an otherwise avoidable ER visit can easily be treated in an outpatient clinic. When you are able to categorize the members that have overused ER services, you will be able to formulate solutions to correct the problem.

Unmanaged chronic conditions and how it leads to gaps in preventive care

Which of your members with chronic conditions are at risk for deteriorating health?

Chronic diseases such as diabetes and chronic obstructive pulmonary disease (COPD) typically drive a significant percentage of your healthcare costs. Preventative care and sound disease management make an enormous difference when it comes to your employees’ well-being as well as your costs. Unfortunately, high-risk patients are less likely than their healthy peers to seek preventative care and comply with recommendations.

According to Montague, Gogovor and Krelenbaum, health strategy and quality of care should focus on people with chronic or multiple diseases. The strategy should address issues of care gaps, meaning the difference between evidence-based protocols, and the actual compliance by members with their care plan. The broad strategy should also include partnerships with doctors, pharmacists and nurses as well as other patients in the community. The network would share resources, allowing system managers to establish a well-informed long-term care policy and uncover previously hidden gaps.

Using our platform, one of our clients learned that a large percentage of employees with diabetes were not compliant with the established treatment protocols specific to this disease.  Specifically, these employees had not had their needed eye and foot exams as suggested by best practices. It was also discovered that one of the main issues employees were struggling with was access, possibly due to lack of transportation or conflicts with an employee’s work schedule. These members were allowed leave to visit their doctors for these services.

Undermanaged complex cases

Is your case management effective in improving care quality?

While certain conditions such as renal kidney failure and cancer are expensive to treat and difficult to manage, there are innovative solution providers that help members and their families to manage their care and optimize the value from their treatment.

These programs can substantially improve quality of care for no additional cost, and often can reduce outlay by a variety of mechanisms including coordinating tests; capping costs at benchmarks; or finding alternative therapies.

Increasing Population Risk

Do you know the most influential risk factors and trends that are affecting your population?

Some conditions are modifiable, while some are chronic. Modifiable ones include obesity and stress and can be managed if the right interventions are in place. Previous work has indicated that the rise in modifiable population risk factors such as obesity accounted for approximately 27 percent of the change in health care spend between 1987 and 2002.1 Treatments have changed over the last few years but it is important to identify the members who are at risk so that they can be treated before the condition worsens.

Questions you should always be asking are what my costs are and prospective risks are at each cohort level and how have the risks evolved over time by cohort? It is important to prioritize population focus for immediate and future impact. Also, prioritize conditions that will drive costs in the future. Having the right population data will help you select the right programs and target them to appropriate population members.


Unless you know your healthcare cost risks, how can you take measures to correct them? Allow predictive intelligence to drive targeted solutions so you are not overpaying your healthcare costs. By understanding the depths of employee engagement and benchmark data, you can make an informed decision with the goal of improving care and lowering costs.