As you might guess from the title and subtitle of Dave Chase’s popular book Relocalizing Health: The Future of Health Care is Local, Open and Independent, the emphasis on “local” is a key building block for his vision of a more cost-effective health care system. While I support many of the concepts discussed in the book, I remain skeptical when it comes to the localization premise ꟷ at least as it applies to large employers with distributed operations.

Don’t get me wrong, I believe health care has always been a local issue and, for the most part, still is. But with a push from the Affordable Care Act and CMS payment rules, local and regional health care has consolidated into monopolistic systems or oligopolies, and independent providers have grown increasingly scarce. And as a result, large health systems have ever greater pricing power heavily shielded by their contracts with the Big 4 insurance companies.

It comes down to simple economics. Limited competition and a third-party payment system mean more cost to the payer. This has gotten so out of hand that the higher negotiated cost levels are impacting ꟷ and at times even bankrupting ꟷ health care consumers (corporate health plan members). Meanwhile, the government wants to shield consumers even more. And if that happens, it will be more gas on an already raging fire for plan sponsors.

As we’ve seen firsthand with our clients, an employer who directly negotiates a fair contract with a local health system will definitely be better off. However, things quickly get complicated when plan members still use competing systems.

That’s because most employers are unwilling to restrict plan member access to providers ꟷ even if the cost and quality data clearly support it. This is especially true in a tight employment market where choice trumps cost savings. Some employers are willing to steer for surgeries like hip and knee replacements, spinal fusions, or bariatric surgery, but they are more the exception than the norm.

So, what’s a health plan sponsor to do? If an employer is not willing to limit provider access, it will ultimately need to steer patients (aggressively) through plan design. Unfortunately, this is where the Big 4 contracts often get in the way, because they don’t like to limit access or steer. And even when they do, they often (for political reasons) steer in the wrong direction.

Which makes sense why Dave Chase is a big proponent of direct contracting and reference-based pricing. While this strategy may circumvent the Big 4, I don’t think it’s practical for large employers with distributed operations.

Does this mean employers have no options to better manage physician and hospital costs? Not completely. There are several modest steps an employer can take to protect the plan from a number of the biggest areas of abuse.

We’re also intrigued with new models like Bind Health. It’s still too early to tell how it performs in a full-replacement environment. However, it will be interesting to see if Bind’s added program costs eat up any savings from employees choosing lower cost and better quality doctors and physicians. Time will tell!