Saving on Employee Health Benefits: Would you Hire this Consultant?

Over the years as an HMO executive and later founding a disease management and Healthcare IT company, I have analyzed a lot of medical claims and quality data. One of the largest was an analysis of a State Medicaid program with about 675,000 beneficiary lives with two years of inpatient, outpatient and pharmacy claims. The pharmacy file alone contained about 15 million prescription fills.

More recently I became certified as a Professional by the Care Innovations Validation Institute and sit on their Advisory Board. This certification tested my ability to look at data and decide whether the outcomes reported were likely to be valid or not.  As you look for vendors or consultants I would suggest you start with the Validation Institute. The following example is a good reason why.

Cruising around the web looking at various healthcare consulting firms and company websites I came across  a company that is targeting employers and claims they  have vetted and can bring in vendors to lower the costs for a company’s self funded health plan. Their website says they can identify, evaluate, oversee, manage and report on the vendors they propose.

On their home page is a chart used to show the savings an employer can expect to see by implementing their various cost saving approaches.  Can you spot the flaw(s)?




Let’s start with the first and most glaring error and its on the first line. According to this consulting firm, Primary Care represents 100% of Total Healthcare spend.   If Primary Care represents 100% of Total Health Care Spend, then there are no other areas attributable to healthcare spend, so I’m not really sure why the other categories are included in this chart. They should have stopped right there.

Again, this group claims they can evaluate, oversee, manage and report on these vendors, know their numbers and can save you money.

We all know that Primary Care does not represent 100% of Total Healthcare spend. So, let’s try this line again using data representing ALL Physician costs (not just PCP’s) and see how close we can get. Turns out that All physician costs represents about 8.6% of Total Healthcare costs. So if one achieved a 15% savings on all 8.6% of physician costs, it would only be 1.29% or less than 1/10th of the total shown above.

This one error invalidates the entire chart. If we corrected this error, and assuming no other errors, the still overstated savings associated with this line are at most $148.14, not $1,723 and the Total Across Offerings savings, assuming they were cumulative, would be $3,528, substantially less than the $5,103.

But wait there is more to this chart.

Lets go to the bottom of the chart.  Here they state “Savings may interact and not be cumulative.”  Really?  Then why do you sum them? So even the $3,528 as more correctly calculated is probably not correct and that leads us to the next issue.

There are three areas they propose that are pharmacy related, the last three lines on this chart. This includes two offerings related to pricing and formulary and one related to specialty drugs.  First, I guess that they are assuming that the first two areas do not interact with each other, nor do they interact with the Specialty pharmacy costs which are a subset of the total 15.4%. Might a change in pricing or formulary selection affect the other? Well they say yes at the bottom, but their actions say no.

Furthermore if this is the case, then the two RX related companies are really creating the 15% of total spend savings not from 15.4% of Total Per Employee Per Year costs but from the 8.8% of RX only related spend (removing the Specialty Rx Management costs). For these vendors  to achieve savings of $265 PEPY from this lower number would require them to drop costs in this area by 24% per service not 15%. And if the two are cumulative, as they show in the chart, that means they will cut RX spend not including specialty drugs by a mind altering 48%! They must have access to some drugs not in my formulary.

And let me add another point to the pharmacy issue completely separate from pricing strategies.  We all know that medication adherence is problematic, in fact many people do not fill prescriptions, stop filling prescriptions and miss doses.   If one has selected a good and honest disease management vendor, depending upon the disease, they will tell the employer to expect to see their pharmacy costs increase as these poor adherence issues are corrected. So as Al Lewis has pointed out on many occasions, not all costs can go down. Might disease management, medication adherence and quality improvement programs have an impact?

And this then leads to the specialty pharmacy costs, are they all cumulative,? Again, they say no, but show yes.

My advice, look at all claims of savings from your consultants and vendors critically.  There are many ways to play with the numbers including some ways to just get them wrong. This is perhaps a simple example, one that everyone would have spotted given the gross first error about Primary Care Savings.

If you have an interest in looking at your data and finding opportunities or selecting vendors to help with your self funded plan, contact me or reach out to a Validation Institute certified professional or  company.




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