Deflation ahead for health costs?

deflating American flag shaped hot air balloon


It looks like the innovations in health care delivery at Serigraph continue to produce results. The company is now running 35% below its peer group nationally.

Costs for a full health care plan, including administration and drugs, came in at $7267 per employee in 2010. That’s about one-third of costs in much of the public sector.

The most startling statistic in our campaign to keep people healthy and to ratchet back health care inflation is hospital admissions. In 2010, the number of inpatient admits dropped to 34, less than half of our peer group average of 70.

Our company had 71 admissions in 2007, so we are saving more than 30 admissions a year at a sticker price of $24,000 and a discounted price of about half of that. That’s a big deal for a mid-size company.

It proves that proactive primary care, including prevention, wellness and chronic disease management, really works.

Further, at mid-year in 2011, our costs per employee are tracking about even with 2010 numbers. That raises the possibility of a 2012 with no premium increases for employees. It will be the 6th time in nine years with no premium increase.
Some other positive results in 2010:

• Emergency room visits were 71 per 1000 lives, or 38% of average. Serigraph people use the ER room only in a real emergency.
• Inpatient surgeries were 51 vs. 80 average per 1000.
• Radiology scans totaled 775 vs. 1300.
• Claims related to poor lifestyle choices were only 3% of our total claims, versus 7.7% for our peers.

These strikingly positive numbers are a testimonial to the engagement of the Serigraph workforce in reforming how care is delivered in this country. They are helping to mange this complex issue.

Reforms such as a consumer-driven plan, on-site primary care, finding the best centers of value and transparency on prices and quality are making a difference, a huge difference.
We still have a lot of innovation to do. For instance, we decided recently to go after depression, the second most costly chronic disease in the work place. Few companies, if any, have an enlightened managerial effort on that front.

We will develop an annual health plan for every employee and spouse, to be worked out privately between them with our on-site medical team.

We will continue our push to obtain all-in prices from health care providers, instead of the complex bills that no one can understand.

The effort to improve health and the related cost structure will never end. It is a learning journey.

The progress in the private sector toward a better business model for the delivery of healthy care has been so striking that it is possible to conceive of the year when health costs go down instead of spiraling upward, as they have done for the past 40 years.

The annual increases in the nation’s health bill in medicine has decelerated in recent years to 6% to 8%, compared to a high of 15% earlier in the last decade.

Some of the decrease has been due to the Great Recession and people’s reluctance to spend on anything during tough times, including health care.

But the rapidly developing, ground-up reforms brought about by corporate payers and their employees also has had a cumulative impact. In the long run, the grass roots reforms will prove far more powerful than the pending insurance reform from Washington D.C.

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  • Tom Torinus


    Great report. A source of hope.

    However, as a 72-year-old who has consumed more medical services in the past year than I have during my first 71 years, I wonder whether Medicare might undermine all the good efforts in the private sector.

    From a strictly personal standpoint Medicare is wonderful and I love it. I pay almost nothing beyond my $45 per month premium for a Medicare supplement and less than $1,000 per year for  co-pays. I never know the cost of the treatment I receive and never have to know. I never have to make a hard decision about whether to get the treatment or not, I just go for it. Why not?

    I never even receive marketing calls or materials from Medicare, just one booklet a year. Meanwhile my supllement provider plies me with phone calls and reams on junk mail and complicated reimbursement form, which I can’t begin to figure out,  for every service received.

    In other words Medicare is a consumer’s dream. Practically all you want for free.

    But the cost! With the numbers of elderly increasing and our bodies rapidly falling at and no incentive whatsoever to make careful choices about what we consume, the elderly’s demand for medical services is overwhelming and  insatiable. What percentge of the total national medical bill is already covered by Medicare? A doctor at the biggest clinic in my aging county said Medicare covered over 70 percent of the clinic’s bills.

    ln a recent column David Brooks reflected that more and more of our national resources are flowing to to what is old and diminishing and feeble, less and less to what to what is young and growing and vital.  I think that is true. I am actually embarrassed by what I am consumning in health care. But I watch my body develop new symptoms and pains at an ever increasing rate, and of course I want out of the pain, and I call my doctor and I get what I want almost free. Just like everybody else over 65.  And there are more and more of us every day.

    How will we ever pay for that?


    • Anonymous

      Great piece of thought. Me thinks Medicare people need some kind of incentives to live right and buy smart, just like the workming folks.

      There also needs to be some kind of self-imposed retraint on utilization. Medicine has become almost recreational for some older folks. That, for sure, we can’t afford.

      Further, some hospitals, doctors and clinics operate at far lower costs and higher quality than others. Why not incentives to use them? Price controls under Medicare is only one tool.

      In short, management science needs to be brought to bear more than political science.

  • Great work, but, it hardly seems likely deflation is ahead. We have had over 20 years of health care costs going up more than inflation – every year. That is an amazing (and horrifyingly bad) record. We need very strong evidence to conclude we can even just reduce the increase in damage done year after year by the broken health care system.

    Getting to the point where we actually start reducing the increased damage done each year is a big leap from where we are (reducing the acceleration of damage [reducing from hugely above inflation to largely above inflation is better than not doing that but hardly a good sign – it is still worse than the year before, just the increase in badness is less than the increase in badness from the previous year).

    Once we actually can start making things better year after year (not just reducing the acceleration of badness) we likely have decades before we can reduce the enormous drain the USA health care system puts on all of us living here to a level that is just average for rich countries.

    • Anonymous

      I admit that guesstimate is a reach. But consider: CDHP plans knock down costs by about one-quarter; proactive primary care with intense chronic disease management knocks down costs by one-third; and lean hospitals are delivering high quality and prices 30%-40% below surrounding market prices. These are proven, audited, beyond-debate, real world savings.

      What’s going on here, I submit, is disruptive innovation, ala Clayton Christensen of Harvard. This all adds up to business model innovation. As Christensen contends, small, unassuming models often become a stampede. The bloated dinosaurs give way to more nimble business models. Think of what humble PCs did to mini-computers and main frames.

      In short, I wouldn’t count out deflation. We are almost there at Serigraph.

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  • Hello,
    I feel that medical services are very pricey these days and one has to keep a good track of all your bills as just a slight mistake can be very expensive.

    • Anonymous

      Drugs run about 11% of the health care bill for Serigraph and its co-workers. The coming flood of patented drugs going generic will help a lot. Watch for such drugs as Lipitor to go generic. Costs to consumers will go down by two-thirds.