The Chelko Consulting Group’s brand promise is “Results Worth Writing About”. This promise
builds on our commitment to help clients achieve a healthier bottom line and workforce.
It’s All in the Execution
How One Manufacturer Saved Over $10 Million on Health Care
Through Vigilance and Data-Driven Plan Re-designs
By Frank Mulvaney and Tracy Lee
If you know anything about the daunting competitive pressures facing American manufacturers these days, you know these companies don’t need escalating costs
pushing them over the edge. Low cost, offshore competitors continue to eat into market share. So, the last thing these domestic companies need is runaway health care benefits inflation. A mid-sized manufacturer of precision products for medical, automotive and industrial applications is among these cost-challenged manufacturers. It does have the good fortune to be able to self-insure its medical and prescription drug plan, backed by stop-loss coverage for large claims. And yet, this company faced the same double digit inflationary environment that other companies did when it came to health coverage.
So the manufacturer began looking for a better way to manage the underlying cost drivers in its group health coverage. “To survive in our market, we just had to find a way to get medical plan costs under control,” stated the company’s chief financial officer
(CFO). “At the same time, I was determined to not do it at the expense of the
The process began in 2002 with a search for a new preferred provider organization (PPO) network and third-party administrator (TPA) that could establish a more cost-vigilant environment throughout the system. The manufacturer hired a consultant, the Cleveland-based Chelko Consulting Group, to help stitch the pieces together. Chelko Consulting quickly guided the company to select a new TPA and a new set of networks that delivered $460,000 in new savings in its first year.
With better claims information now available, the team isolated the real sources of the manufacturer’s escalating costs. It became apparent that a single case was having a large incremental impact on the group’s escalating costs. It involved a bone-marrow
transplant, which was viewed as a cutting-edge treatment for the plan member’s specific
type of cancer.
With Chelko’s help, the manufacturer identified and contracted with a specialty network for transplant services, one which refers transplant patients only to the best centers of excellence around the country. Because these facilities have documented results that include better outcomes and fewer complications, they’re also ultimately less expensive.
The medical plan was also amended to add benefits for associated transportation where needed. It was perhaps the second important step toward reining in costs for the company.
Chelko Consulting also leveraged its relationship with the manufacturer’s stop-loss
carrier to ensure this transplant procedure would be covered under both the plan and the existing stop-loss policy. This experience led the company to begin regular reviews of its 20 largest individual claims, prompting a number of these potential cost escalators to more active case-management.
In one case, Chelko Consulting flagged a bill that they knew was egregiously high, involving the surgical introduction of a pacemaker for one employee. Knowing that the bill for that procedure was at least four times higher than it should have been, Chelko intervened with the TPA and network to go back to the hospital and challenge the bill. The network contract allowed the outrageous bill, but Chelko and the manufacturer were not satisfied with that answer. Ultimately, the network and hospital settled for a reduced amount – saving the plan about $42,000 on that lone item. The upshot,
however, is this: the TPA is now on alert that all its payment decisions are being actively monitored by a consultant with independent industry knowledge of what various sub-components of medical bills should really cost.
Today, the system calls for everyone to closely watch the ongoing claims data, remaining on high alert for potential new additions to the list of employees who might soon become the source of high claims. Where appropriate, the manufacturer addresses particular cases with a caring level of extra attention, using the best practices found anywhere in the industry.
Recognizing the need to stay ever vigilant, the manufacturer began to use Chelko’s
Medical Benefits Plan Scorecard, a unique monthly tracking and reporting system of the key “measures that matter.” This ongoing monitoring system was supplemented by an in-depth annual reporting and analysis system of claims by type of service, diagnosis, provider, claimant-type, etc. This data warehouse enables Chelko and the manufacturer to easily slice and dice the data to determine the “who, what, where and how much” of its utilization trends.
In essence, the company’s claims data was massaged on three levels: the monthly
scorecard of the key “measures that matter,” the regular review of large claims, and the annual claims data analysis. All of these elements represent levels of reporting, analysis and client involvement which go well beyond the normal diligence level in the industry.
As Chelko’s Frank Mulvaney explains: “Employers tend to get a lot of data from their third party administrators, especially on an annual basis. What they don’t generally get is guidance, interpretation, and action to go with that. The important thing is bringing data to life, so it’s actionable.”
The manufacturer also fine-tuned a number of modest, but important plan-design changes including instituting a surcharge for the working spouses of employees. The surcharge brought in an additional $10,000 in premiums in the first year and reduced the number of spouses in the plan that had coverage available through another employer.
None of these changes may be very sexy, and perhaps none would have had a marked effect in isolation. But collectively, the payoff has been tremendous. After five years of
working this ambitious Results Worth Writing Aboutplan, the manufacturer’s Mid-sized manufacturer - 5 year estimated savings of $10.4 million
per-employee health care $9,000costs are actually lower $8,000than they were in 2002. $7,000Estimated PEPY (Using Mercer Trend)$6,000Over that time, the Actual PEPY$5,000company has saved an $4,000estimated $10.7 million on $3,000
$2,000its cumulative health care $1,000bill. And that’s not all. For $0
2008 the company has Yr 1selected a new national Yr 2network that has already improved usage and should yield considerably more in
“I think our employees appreciate the fact that these actions have enabled us to keep Yr 5their cost share in check at the same time,” says the CFO. “Ultimately, it makes for a Yr 6much healthier company which is just as good for our employees, our customers and our shareholders.”
Frank Mulvaney and Tracy Lee are consulting associates with Chelko Consulting Group Frank Mulvaney came to the Chelko Group from MetLife where he worked in benefits administration outsourcing. Tracy Lee previously served as director of benefits and services for Progressive Insurance.