Bloomberg reported this week that Walmart is experimenting buying healthcare for its workers directly from care providers. The retail giant, which is the largest private employer in the US, has been bypassing insurers and buying healthcare directly from the providers in six of its regions.
Insurers, who are middlemen that negotiate with doctors and hospitals, are the ones that drive up the cost of healthcare. Walmart is trying to see if it can reduce costs the same way it has brought down prices for its customers.
Walmart’s senior director for US Healthcare, Lisa Woods stated that the company wanted to see what worked and what didn’t. She said if the company couldn’t impact and influence how cost was increasing, then they needed to do something to change the status quo.
Currently, companies are the biggest givers of health insurance in the United States. More than 150 million people are provided with health coverage thanks to the companies they work for. According to the Kaiser Family Foundation, health insurance premiums have skyrocketed 55% in the last decade. Most companies have done little to change that; instead they have asked their employees to pay higher out-of-pocket expenses and give higher contributions.
Now, however, the protests about the rising cost of healthcare are growing. President Trump’s administration has targeted the healthcare middlemen, denouncing them for their lack of transparency.
People are openly criticizing the health insurance industry. In fact, the Food and Drug Administration’s (FDA) Commissioner, Scott Gottlieb directly accused the giant pharmacy benefit managers (PBMs) of blocking access to less expensive generic versions of the most costly drugs in the country, calling it a ‘rigged payment scheme’. Some of the PBMs he named are UnitedHealth Group Inc.’s OptumRx, CVS Health Corp. and Express Script Holding Co.
Warren Buffet has called the skyrocketing costs of healthcare a “tapeworm” that is leeching away the country’s strength.
Thanks to the rising tide of resentment against such market monopoly, there is a refashioning of the healthcare industry in progress right now. Companies are beginning to focus on simplifying the health-care system and lowering costs. This has led to a wave of unconventional deals between insurers and PBMs.
The pressure on healthcare has gone up now that companies like Amazon, Walmart, JP Morgan Chase & Co. and Berkshire Hathaway are beginning to look for alternate solutions for providing their workers with cheaper and better healthcare that is being offered by current insurers.
And they are not the only ones. Private equity behemoth, Blackstone Group LP and even postage meter manufacturer Pitney Bowes Inc. are also looking at new ways in which they can provide healthcare for their employees at lower costs.
Amazon, JP Morgan and Berkshire may have announced this year that they want to do something for their employees in terms of better and cheaper healthcare, but Walmart has been quietly experimenting with the concept for the last two years.
The retailer created ACOs – Accountable Care Organizations – two years ago. ACOs can be set up by employers or with insurers. They will limit consumers to a smaller group of care providers. These plans also include financial incentives for doctors as well as hospitals. So, if they make sure that employees get treatment for chronic conditions such as diabetes, heart disease or even cancer screenings, then doctors and hospitals will receive an incentive.
So far, Walmart said that hospital admissions and emergency room visits have gone down, but visits to primary care doctors have gone up. While it is still too early to assess whether the company has saved money, premiums have definitely been lower with ACO plans.