What Does Criticism of CVS Caremark’s New Healthcare Program Really Reveal?

CVS Caremark was in the news a couple weeks ago after they launched a new element to their health insurance program. As part of their standard coverage, all employees have been asked to take a health screening or face a $50 per month penalty through their premiums. As part of this screening, employees must disclose some sensitive information, such as weight or BMI, which would be collected and tracked by a third party.

This new policy created a firestorm.  The first objection was that it was mandatory, forcing employees to disclose information they may not be comfortable sharing.  On top of that, by including weight and BMI, some observers saw this as a first step towards a “fat tax”, where employers could raise premiums or deny coverage for poor health.

While I can't speak to how this info might be used in the future (although use of medical data by employers is illegal right now), I am bewildered by the criticism.  That criticism isn't difficult to respond to:

• Understanding your key health metrics is an important part of maintaining, and ultimately improving, your health.  Although there is little hard data around the quantified self movement, there is plenty of anecdotal evidence that having this data leads to better decisions
• Whether you interpret the $600 as a penalty or an incentive to do your health screening, employers should have some tool to encourage employees to collect this data.  Let’s be honest, most people will not do this on their own
• CVS Caremark isn't the only company doing this – according to the National Business Group on Health, 62% of large employers offered biometric screenings in 2011 and 52% of those had incentives to complete them.  And as one of the largest healthcare companies in the US, it’s important for CVS to be a leader and set the tone for other companies to follow

What I’m more fascinated by is the root causes of this fear.  Given the state of our healthcare system, you would think everyone would be open to new, innovative approaches to reducing costs.  Instead, this is a reflection of larger themes in our national dialogue:

• Backlash against any policy that is perceived to reduce individual choice, even when the decision is made with positive intent
• Mistrust of large corporations and government, with a believe they are nefarious and any data they collect will be used negatively
• A media that recognizes these fears and stirs up controversy by highlighting stories that play into them

As a country, are we so stubborn that we’re unwilling to try new approaches, even if it reduces some of our choice for our own benefit?  CVS Caremark is a Fortune 20 public company and I can guarantee if this program doesn't show results (monetarily or health-related), it will get shut down.  But that doesn’t mean we shouldn't try it, even for just one year.  I agree, there are some policies that may go too far (i.e., NYC’s soda ban – while I applaud the intent, it’s too capricious and difficult to enforce), but shutting down innovation under the pretense of individual choice sets a dangerous precedent.

On top of that, whether we want to acknowledge it or not, large corporations and government drive the economy and agenda of this nation, but also help us live better lives.  Without large business, we wouldn't have Walmart, Apple, or Google.  Without government, we wouldn't have roads, public education, or scientific advances.  And, for better or worse, in order for them to continue serving us and improving our collective lives, they need to be smart about their money, which often times means using data to make better decisions.

The controversy seems to have died down for now, but I believe this is only the start of a larger conversation about the employee-employer relationship around healthcare.

What Is The Impact Of China’s Rapid Growth On Public Health?

I flew into Chicago last Thursday night and was greeted by this gorgeous sight:

It’s not the traditional skyline, but in some ways I find it even more breathtaking.  Beyond its beauty, what struck me most was the incredible planning and work that went into creating this city.  But at what price?

China is facing this exact dilemma, generating record levels of pollution that have engulfed several cities.  This issue was highlighted by several news outlets over the past few weeks, including this great photo essay.  It’s clear that China’s massive growth has had some short term consequences, including apparent environmental impacts.  But when the public is breathing in pollution 25x higher than the safe amount, what are the long term impacts to public health and the economy?

MIT released an interesting study last year examining this question.  The study first laid out common health impacts of this pollution, ranging from hospital admissions, to chronic respiratory issues, to lost productivity.  Applying various scenarios and simulations, the study estimated that China lost $112 billion due to this pollution.  While this is dwarfed by China’s $7 trillion GDP, it’s still a staggering sum that will only be exacerbated as the country continues to grow.  Given the strain the US is currently facing on its own healthcare system, it will be curious how China deals with its issues down the line.

One area it needs to tackle is the disturbing misconceptions and a lack of public information about prevention.  In the photos, you can see people wearing face masks to combat the smog.  This is also a common sight at airports, where I usually laugh because I don’t think a flimsy mask is going to prevent you from getting sick (there’s even some evidence to back me up).  Similarly, the masks in China aren’t going to prevent people from breathing in many of the smaller particulates that can be just as harmful as the ones you can see.  China’s government needs to look beyond just curbing the pollution and think about educating people on how to stay safe or risk an even larger catastrophe.

“So, What Exactly Do You Do?”

I dread that question.  Insurance is unsexy, much less drug insurance which is obscure and sounds even more boring.  Then throw on top of that my actual role (product strategy and marketing), which is unique for our own company and tough to understand.  So even after I give the condensed version (“I help people get their drugs at the right place and at a low cost”), I still get quizzical looks before the conversation comes to a grinding halt.

Since the shortened version doesn't work, this week’s post is dedicated to the longer version, which also connects back to how the healthcare system needs to change and what small part my company is doing to help.

At a very high level, my group does three core things:

1) Create Network Products: Employers and health plans (“clients” in our terms) come to us because they don’t want to manage drug spend for the people they employ or cover.  Our company provides this service by acting as a middleman between the clients, their members, pharmacies and pharmaceuticals.  We negotiate drug discounts with pharmacies and drug companies that are then passed back to the client and members through other discounts and lower copays. 

My group specifically analyzes and markets the best combination of pharmacies and discounts to save clients the most money, while still giving members access to get their drugs.  For example, a client can choose to let members fill prescriptions at more pharmacies, making it easy for their members to get their drugs.  However, the client saves money by cutting out duplicative pharmacies and only allow members to fill at selected retailers (i.e., clients can save more money by cutting out the CVS or Wagreens that are within 5 miles of one another).

2) Create Incentives: In addition to choosing what type of pharmacy network they want, clients also need to create incentives for their members to use these networks and continue taking their medication.  These incentives are usually either financial or hard stops.  For example, to encourage folks to use the smaller pharmacy network, we can increase the copay for their drugs by $10 if they fill at a non-preferred retailer – some people will pay that penalty, but many will switch over to our network.  If a client is really serious about saving money through these restrictions, they will put fill limits in place, which means a member’s prescription is not covered if they try to fill that Rx outside of their plan.

3) Encourage Usage: While the incentives are the dollars and cents, we also develop consumer marketing materials to take a softer approach.  These come in the form of letters or calls or emails that tell you how you can save money and the importance of staying on your medications.  They are also used in conjunction with the incentives to make sure we avoid as many rejects and unhappy members as possible.

These efforts result in saving the client and member money by passing along the discounts from these restrictions. At the same time, our company makes a very small profit by charging dispensing fees for each drug processed or a small spread between what the pharmacies pay and what the client pays.  Some argue that we’re increasing the cost of drugs, but without taking advantage of our size (we’re the second largest purchaser of generic drugs in the country), we couldn't get these discounts that far outweigh the fees.

So what does my group teach us about the healthcare system as a whole?  First, there’s real value in intelligently limiting healthcare choices.  By changing the pharmacies a person can fill at, we can recognize up to 10% savings across all drug spend – combine that with other programs (e.g., drug formularies, clinical programs) and we’re talking serious money.  On top of that, our customer satisfaction is at an all-time high, meaning people are not up in arms about having fewer choices.

Second, this is a delicate system that requires incredible coordination.  If any one of these systems breaks – fewer clients come to us for drug benefits, pharmacies start playing hardball, members stop taking their drugs – we will not be able to provide the same services and everyone will be worse off.  Prime examples of this are the spat between Walgreens / Express Scripts and the argument for the individual mandate (i.e., if everyone doesn't participate, then we can’t pay for the people who use the most care).

Finally, it’s going to take a lot of smart people to get out of this mess.  I work with some very intelligent people, yet we’re only impacting a very small part of the healthcare problem, and imperfectly at that.  If we’re going to keep our country healthy, we need a lot more brainpower and energy behind big ideas that are going to make real change.

What Does An All-Inclusive Resort Teach Us About The Healthcare System?

Several weeks ago, I visited an all-inclusive resort In the Caribbean.  While I should have been relaxing and disconnecting from work, my mind kept drifting back to how this model reflected the challenges of our current healthcare system:

1) Overuse of benefits: Anyone who has been to an all-inclusive resort or cruise knows that there is an endless supply of food.  I found myself grazing on snacks throughout the day and having multiple meals even if I didn't need more food.  Although those meals provided no additional benefit (and probably hurt me – did I really need that last plate of nachos?), I ate and drank because it was there and it was free.  Similarly, people with more generous insurance benefits may use more than their fair share of services, which is costly to the system and does not always mean better outcomes for the patient.

2) Subsidizing high cost consumers: Given that a lot of people were eating a lot of food, how do these resorts stay in business?  Serving low cost products is one answer, but they also benefit from the people who don’t consume as much.  These guests are far less costly, but still pay a similar, flat price, helping to subsidize the other guests.  Insurance companies do the same thing, offsetting older, sicker, more expensive patients by balancing their risk pool with younger, healthier, and cheaper consumers.

3) Misaligned incentives for healthy behavior: The resort also offered excursions like scuba diving and zip lining that sounded like a lot of fun.  These trips could have been the best part of our trip, but we chose not to participate.  Why?  It took extra effort to book the trips (we wanted to make as few decisions as possible), they weren't pushed aggressively by the resort (they were provided by other companies), and they cost extra money. 

The public makes similar calculations when deciding between healthy or less healthy behavior.  For example, cooking healthy (or cooking at all vs. going out to eat) requires planning, time that many people may not have or want to invest.  Health foods are also marketed far less aggressively than fast food and processed meals (especially to kids), meaning consumer awareness of their options may be lower.  Finally, anything “healthy” has a stigma (whether true or not) of being more expensive, which dissuades people from making these better decisions even if it’s better for them in the long run.

Interestingly, all of these issues are addressed in the Affordable Care Act (i.e., eliminates Cadillac plans, requires individual mandate to pay for higher risk individuals, allows for free preventative services).  I’m not advocating for or against healthcare reform, but I do think addressing those problems moves our healthcare system away from being a hedonist escape for a select few towards a more balanced, sustainable model.

Do Consumers Lose Out If Healthcare Companies Don’t Speak Plain English?

A recent article in BenefitsPro discusses how the current administration may reverse course on a popular provision in the Affordable Care Act. The requirement forces healthplans to simplify plan language and give examples of coverage options by this fall. I imagine this will resemble credit card offers that have a table highlighting key components (e.g., APR) and put everything into plain English.

However, insurance companies are pushing back, saying that this would be expensive – a trade group puts the cost at $382 million over the first two years. The author contends the White House may buckle under this pressure, hoping to appear business friendly heading into the November elections.

Overall, I disagree with the insurance trade group assessment. There will definitely be an upfront cost, but they don’t talk about the potential benefits from this transparency. For example, this education may allow the customer to choose a more efficient plan that puts limits on coverage or helps them understand those limits better, both of which help healthcare dollars be spent more efficiently and lower costs.

While I think transparency benefits the system by helping consumers make better decisions, my faith was shaken by a Freakonomics podcast that discussed financial literacy education. One of the guests argued against this (there’s a great debate in the middle of the podcast), saying that a little education…

1) …can give consumers overconfidence that leads to more reckless behavior – a healthcare analogy is a patient who visits a doctor armed with online research that complicates the diagnosis and treatment options

2) …shows no evidence of positive behavior change. She says that studies show people like learning about finance, but didn’t necessarily change their habits

3) …isn’t sufficient to address the complex financial products available - healthcare insurance definitely has a similar complexity

This isn’t a perfect comparison and educating people on their plan options, not how to use the plan, are two different processes. Nevertheless, while I support greater transparency and providing greater consumer choice, the outcome of this regulation, if it survives, could be a little more uncertain.

Do Studies Support Legislation To Reduce Childhood Obesity?

I recently ran across a couple interesting articles examining the relationship between junk food and childhood obesity, with implications on legislation. Somewhat surprising findings:

1) A study by the American Journal of Preventative Medicine found that fast food restaurants did not have the intended response to a ban on kid’s meal toys. The study was based in Santa Clarita, CA, the first city to pass this type of ordinance, and found that restaurants responded by eliminating the toys and promoting existing menu options rather than retooling meals to allow toys to remain on the menu. While there are a number of reasons to choose this strategy (e.g., long lead time to revamp menus, extra costs associated with toys), it demonstrates that the legislation failed to deliver more healthy meals. What will be interesting to see is the impact to sales and how much demand they toys accounted for.

2) Another recent study from Penn State took the blame for poor nutrition away from school and placed it on the home. The study showed that while access to junk food at schools rose between fifth and eighth grade, obesity rates among the students in the survey declined. This led the team to conclude that obesity was influenced less by school choices than by other factors. While this finding isn’t groundbreaking, it does bring into question investments being made to reduce junk food at schools and improve nutrition. If access at school has limited impact on obesity rates, would energy and resources be better spent on parent education and access to healthier foods at home?

You could argue these measures were successful because they eliminated a marketing gimmick targeted towards kids and reduced exposure to unhealthy foods. Some restaurants, potentially spurred by this type of legislation, are proactively taking new measures to improve kid’s meals (e.g., McDonalds will be automatically adding apples to Happy Meals starting in March). But these are great case studies on how legislation may not be an effective tool if businesses can work around the rules or the real issues are outside the scope of the law.