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Case Study: Regional Health Network

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A regional health network composed of five hospitals and 20,000 employees (50,000 health plan members) had operated as an affiliation since 1990. While the institutions were clinically integrated, they were not organizationally integrated in many respects, including their employee benefits plans. With benefits expenses on the rise, the health system was seeking ways to reduce their costs. They turned to Aon for help crafting a solution. 


The hospitals each contracted separately for self-insured medical services through an array of vendors. While they recognized the potential advantages of consolidating health plan purchasing through a single vendor and contract, the hospitals wanted to retain the flexibility to tailor benefit plan designs to the needs of their individual employee populations, with distinct brand identities.


Since the hospitals and health systems were not technically a single entity, but a collection of affiliated institutions, there were regulatory constraints on their ability to standardize on a single plan. In addition, some of the institutions had labor union contracts that dictated certain aspects of their health plans. 


Group Purchasing Approach

To meet these competing priorities, the Aon team developed a strategy to consolidate benefit services with a single vendor, while negotiating individual multi-year agreements for each institution. This enabled each institution to retain a distinct plan design while enjoying the cost advantages of a group alliance purchasing approach. 


Throughout the process, the Aon team worked closely with the HR staffs at each institution to design each plan. Managing the RFP process, Aon identified an ASO (administrative services only) vendor and negotiated agreements to achieve competitive group pricing while meeting the needs of individual plan designs. 


Optimizing Medical Management

The Aon team also looked at how medical management was handled across the network, identifying strategies for improving utilization of system resources by health plan members. Since the hospitals were clinically integrated, they were well positioned to hand patients off from one facility to another when appropriate. 


As part of the ASO contract process, Aon negotiated carving out medical management services. This eliminated medical management fees, while allowing each institution to contract with an independent, third-party care management vendor. Each institution could choose one medical management vendor from a selection of three, or they could use in-house care management resources, if desired. 


Data Sharing Concession

A key concession in this process was an agreement by the ASO to share data and work collaboratively with these delegated care management organizations. In collaboration with the health system, Aon developed a single, clear set of data sharing requirements to which all parties agreed. 


As part of the medical management initiative, the health plans were designed to encourage use of in-system services wherever possible. This was achieved through a tiered network strategy that offered the lowest member cost for using their own facility, a slightly higher cost for using another facility in the health network, and finally a slightly higher cost for going outside the health system but within the carrier network. 


New Wrap Network Model

How to handle out-of-network claims for both emergent and non-emergent services was another key area of focus for the health system. Once again, each institution had its own arrangement for out-of-network claims. Most facilities contracted with wrap networks to secure savings for these services. 


The Aon team proposed a different approach, from a vendor-based percentage of savings to a Medicare-based model. Under this model, out-of-network claims would be paid at a percentage of the Medicare charge for that procedure or service. This allowed for greater flexibility in choosing out-of-network providers, while reducing out-of-pocket costs for services. 


Bottom-line Results

A year after implementing Aon’s recommendations, the health system saw impressive results:


  • $7 to $12 PEPM (per employee/per month) reduction in ASO fees as a result of the new single vendor contract.
  • $5 to $9 PEPM reduction in medical management fees, freeing up funds to redeploy to alternate medical and care management resources that met the needs of each institution’s member population.
  • $9 PEPM average savings on out-of-network claims thanks to the Medicare-based model, which reduced out-of-network expenses by 1% to 4% of total claims cost as compared to the previous vendor-based model.


All of the recommendations developed and implemented by Aon were focused on enabling each institution to purchase the services they needed, while leveraging economies of scale to reduce costs. A critical concern was achieving these financial advantages, without diminishing health benefits—a critical consideration in a competitive labor market in the health system’s metro area locations. The Aon team, working in close collaboration with HR leaders from all of the health system’s institutions, succeeded on all counts.