A fascinating internal memo by Wal-Mart EVP M. Susan Chambers (at left) describes the company’s healthcare cost crisis and outlines some "limited risk" and some "bold" steps to bring costs under control, make employees happier … and improve Wal-Mart’s public reputation in the face of increasing calls for new state and local regulations. The leaked document, written for the board of directors and based on studies with McKinsey & Company, is brutally honest: older, fatter, sicker, long-employed full-time workers are much more expensive than cheaper, younger, healthier part-time new hires — but they are no more productive. Wal-Mart’s employee benefit costs jumped from $2.8 billion to $4.2 billion in three years. The company earned $10.5 billion on sales of $285 billion last year. (See the recent article by Steven Greenhouse and Michael Barbaro from the New York Times.)
This Tuesday at 10 am EST, Brian Lehrer, host of a talk show on New York’s public radio station WNYC, will present "Who Pays for Healthcare?" discussing the memo with an economist and his New York audience (see box below). No doubt, there will be plenty of public radio hand-wringing about the evil corporation where 5% of employees resort to Medicaid, but memo fairly outlines Wal-Mart’s relative position in the overall labor market as well as the stingier retail sect, steps like:
Some of the memo’s notes on workforce productivity and recruiting strategy will scare people who’ve never run a business, but the healthcare issues for the country’s biggest employer are the ones every employer — and every employee — will face in the future. There’s a lot of disruption on the way, maybe for the better.
The Brian Lehrer Show: Who Pays for Healthcare?
WNYC New York, Tuesday, December 13, 2005, 10AM on 93.9 FM and AM 820 , rebroadcast at 1AM on AM 820. Available on-line at WNYC.org.
Read the Wal-Mart memo Reviewing and Revising Wal-Mart’s Benefits Strategy: Memorandum to the Board of Directors from Susan Chambers [PDF]
In a much-discussed August 29, 2005 New Yorker article "The Moral Hazard Myth: The bad idea behind our failed health-care system," Malcolm Gladwell argues for universal health care and against the U.S. policy perspective that free universal comprehensive medical care is inherently wasteful. The economics term is "moral hazard:" if you’re insulated against risk, you’ll act more riskily. In healthcare, if the insurance company is paying the bill, you’ll see the doctor more often, whether or not it’s necessary. Gladwell attacks the idea that people only go to the doctor for the best of reasons, and don’t go because they can’t afford to. He also cites Medicare as a great example of a system all users love. Of course they love it: it’s free if you’re over 65. (Ask doctors if they love it.)
Economist Arthur Kling corrects Gladwell’s flawed analysis in "How Economists Really View Health Insurance," pointing out that it’s never a good idea to separate services from costs:
As an economist, I believe that the
law of demand applies in health care. I believe that if patients are
insulated from the cost of health care, then they will err on the side
of obtaining unnecessary CT scans, MRI’s, and visits to specialists.
They also will "err" on the side of obtaining useful preventive care.
But there’s a different side to the discussion that we covered in "Unleashing the Shopping Monster." If the insurance company is paying, the customer doesn’t really care what things cost. Branded vs generic drugs. Three office visits vs one phone consultation. Luxurious CT scans. Defensive medicine. Emergency bypass surgery vs regular exercise and healthy eating. The under-trained nay-saying beancounters at the insurance companies can’t possibly keep up with the spending possibilities, and everybody suffers because costs keep rising.
Demos always sell. For doctors, patients and prospective patients, slp3D broadcasts live television over the Internet from real operating rooms, complete with the play-by-play, color commentary and computer graphics … just like a ball game.
The screen shot at left is from the Brigham and Women’s Hospital’s Minimally Invasive Knee Replacement Surgery show that was broadcast on May 20, 2005 starring Doctors Thomas Thornhill and Wolfgang Fitz. (Click "VIEW WEBCAST" from the operation web page to see a recording of the show. The operating room sequence starts at about 12:30 into the program.) No doubt it’s a very useful way to disseminate information to doctors and staff. Viewers can email questions during the procedures, and medical professionals get Continuing Medical Education (CME) credits from the Harvard Medical School.
The program is also a pitch for surgery. The web page has links to "Make and Appointment" or "Refer a Patient" and includes some sell-copy about the hospital. Slip3D highlights the ROI for hospitals broadcasting surgeries:
- An average of 10-20 surgical cases booked within 3 weeks of a live event
- As much as 8-fold increases in patient volume for targeted service lines
- Up to $900K in gross revenue for Client Hospitals
- Registered Professional audiences averaging between 1,500 and 2,200 for CME and clinical forums
- Audiences from all 50 states as well as South/Central America, Asia Pacific and Europe
- As much as a 70% improvement in client website performance
- As many as 58% of Client website visitors staying 30 minutes-plus
In a competitive medical environment, an 8-fold increase in patient volume and almost $1 million in gross revenue are good things for a hospital. For someone who needs important surgery, being able to watch a typical procedure live and hear an informed description can de-mystify a scary medical event. And for doctors around the world, viewing the best practices of leading U.S. hospitals disseminates information they might not be able to get otherwise.
Inside many of us lurks the unquenchable urge to shop, the hunger for a better deal. January white sales, cents-off coupons, buy-one-get-one-free, discount cards, cash-back deals: businesses know that consumers will walk a mile to pinch a penny.
Increasingly, that irresistible force is being unleashed on healthcare decisions. Web browsers visit sites like WebMD, Dr. Koop and the Digital Hospital and show up at their doctor’s office with printouts of the conditions they think they have and the remedies they think they need. The visionary Overlake Medical Center in Washington State publishes a Healthcare Consumerism Checklist (at left) with information about patient rights, health records policies and on-line quacks. Direct-to-consumer advertising pitches Cialis and Celebrex and Viagra with million-dollar prime time TV commercials. And the U.S. Department of Health and Human Services even runs a HospitalCare analysis web site that compares key acute care indicies just like Yahoo! Shopping compares refrigerators.
The irresistible shopping monster could become a disruptive force on healthcare costs in the U.S. In a 2002 ruling, the Internal Revenue Service opened the way for Consumer-Directed Health Plans (CDHDs), one of the hottest new products in the world of employee benefits. In combination with a conventional health plan with a high deductible, consumers (and, often employers) contribute to tax-free health reimbursement accounts (HRA). The HRAs are used for normal medical expenses, but the money not spent on healthcare this year can be rolled over into following years, creating a growing asset protected from the tax man.
Traditional HMOs control costs by chiseling down invoices and denying payments to doctors through complex bureaucracies that nobody understands. Healthcare consumerism combines the need to stay healthy with the urge to save money and the desire to be in control. It may not be for everybody, but shopping has some real therapeutic possibilities.