Skip to main content

How Employers Can Optimize Cost and Quality of Healthcare: A Q&A With Wendy Smith of Aon

Employers are familiar with balancing quality and cost of healthcare. Now, because of the financial effects of the COVID-19 pandemic, many employers are forced to refocus their efforts to save on medical costs without sacrificing employee health. Aon’s 2020 health survey found that 45% of employers surveyed are interested in steering participants toward high-quality, virtual-first plan designs and new health models with cost sharing — a marked change post-pandemic.

At the same time, the current market has been a hotbed of innovation in digital care delivery and value-based solution sets. Indeed, interest in new healthcare technology is accelerating thanks to virtual care visits: While 11% of consumers used telehealth visits in 2019, 46% of consumers had opted for virtual visits by May 2020.[1] Research shows that the global digital health market is expected to grow by approximately 37% this year.[2] This flurry of activity is producing more digital care options and analytics tools to help employers evaluate provider networks, bundled options and care delivery systems[3] — all of which can decrease costs and improve quality of care.  

In this interview, Wendy Smith, senior vice president and national leader of the Delivery System Transformation team at Aon Health & Benefits, discusses how to select the right provider network or bundle while staying mindful of costs and what the patient experience could look like in the future.


Q: What challenges have employers faced in closing the gap between cost and quality of care?

Smith: Employers must balance adopting a new care delivery model and facilitating clinical integration and care transitions while ensuring continuity of care; this requires rigorous implementation and coordination across stakeholders and modalities.

Generally, HR teams are swamped; they don’t have the time or the expertise to implement these new tools and look at new solution sets. They think, “It’s too complicated; it’s too expensive.” That’s where I think a good consultant working toward a value-based care proposition can do a good job of vetting solutions and implementing new tools. Instead of syncing all the different aspects of care transitions, employers can then focus on the internal pieces, including rolling out a communications strategy about new care delivery models or deciding how they are going to push the information out to their employees.

It can also be daunting for employers to compare cost and quality because there is currently little to no transparency in the market. There may be transparency in price, but not in quality, which makes it hard to see the correlation between the two. For example, within a certain market, total knee replacement surgery may be the most expensive with the lowest-quality provider, or the highest-quality provider might offer the lowest cost. Patients also have limited access to information about costs and quality, though this is changing.


Q: What does provider optimization look like?

Smith: Provider optimization focuses on delivering high-quality care more efficiently and using data to help carriers and providers work together for better health outcomes and better costs. Typically, cost metrics and healthcare-outcome metrics help employers optimize their providers. When you look at a bundled payment, which is a value-based proposition, the reimbursement moves from an “a la carte” fee-for-service payment to a single payment for the entire episode of care. This approach holds providers accountable for delivering on that one price. And there are significant savings right off the bat from moving from fee-for-service to a bundle. This transition is where the provider optimization comes into play very vividly.

Indeed, employers should look at vendor solution sets that support provider optimization (higher quality/lower costs). For instance, surgical costs account for up to 25% of employers’ total medical spending. To reduce those costs, employers can move from fee-for-service to a surgical bundle. In doing so, they save on cost and quality by vetting surgeons included in the bundle and partnering with only the top-quality providers while also opting to transition the site of service from inpatient to outpatient. This shift reduces costs and supports better patient outcomes.


Q: How can employers find the right care solution or bundle for their populations?

Smith: Once we know an employer’s areas of opportunity, we can start looking at various solution sets such as surgical networks, reference-based pricing, narrow carrier networks, advanced primary-care models and direct contracting to identify the appropriate solution. Then we conduct a savings analysis. As an example, we’ll look at employers’ claims from the most recent complete year and compare them with what it would have cost through a bundled-payment initiative. We look at gross savings; we consider vendor fees and we look at the potential net savings. This analysis is an easy way for an employer to see what can drive savings. If you look at surgical spending, for example, it makes up a significant portion of the total medical costs for most employers. And often the same categories drive costs; for instance, we know that musculoskeletal and back pain are the No. 1 leading medical conditions in North America.[4] The analysis provides a clear picture of an employer’s cost drivers and employee needs.


Q: What are things employers should know before they make a change in their networks or delivery of care?

Smith: There are many things to consider when changing carriers or networks or making new vendor alignments. Healthcare is complex, and there will be bumps in the road with new implementations. But change is necessary, and the outputs of better costs and higher quality are valid reasons to pursue these changes.

There was one healthcare company that wanted to implement a new surgical network, but it had a lot of internal complexity and was tied to a carrier for its delivery system. In this situation, there were a lot of legal considerations and conversations about cybersecurity before the employer could implement a new network. However, the compelling savings and improved outcomes were reasons enough to push through. As a guideline, moving from fee-for-service to a single bundle payment reduces the total surgical spending by about 35% to 50% on average.

Employers can implement employee incentives, such as waiving the coinsurance or deductible, to encourage people to use a surgical bundle. Changes in networks or delivery of care can also be made in an off-anniversary cycle — that is, not at the same time as the redesign of a normal plan or of benefits — to reduce strain on HR. Employers should also roll out specific, multimodal communications strategies such as email, text, intranet banners and even mailers to alert employees across demographics about the changes. Implementation timelines are also important, as it can take up to four months to make these changes.  


Q: Does the size of the employer affect how it approaches provider optimization?

Smith: Most solutions work well across middle-market (500 to 5,000 employees), large (5,000 to 10,000 employees) and jumbo (more than 10,000 employees) accounts. Reference-based pricing and surgical-network solutions are used for self-funded employers only. As vendor sophistication has improved, larger employers are using vendor services. Direct contracting with a specific health system or accountable care organization requires larger numbers (at least 2,000 employees) in the system’s geographic area for the delivery system to be interested.


Q: How have digital tools evolved to help employers find optimal care solutions?

Smith: Previously, employers had to use multiple tools and vendor solution sets to assess providers and costs of care. Now, all of these point solutions are aggregated together on one platform, making the process much more streamlined. In other instances, hospital systems are developing their own digital platforms for employers to use.


Q: What might the patient experience look like under a digital value-based care model?

Smith: Let’s use the example of surgical networks. Employees could have a care advocate who guides them from presurgical steps through post-surgical recovery, helping them navigate the virtual system. A care advocate might help employees review the different surgical providers in their network or explain how they should prepare for their surgery. These kinds of offerings and platforms are important for employers and employees; they want a differentiated care experience that carriers traditionally don’t provide. And that personalized experience will make a huge difference in patient outcomes as well as in how employees navigate the system and experience and receive care.  

[1] “Telehealth: A quarter-trillion-dollar post-COVID-19 reality?” McKinsey & Company

[2] “Global Digital Health Market Report 2020: Market is Expected to Witness a 37.1% Spike in Growth in 2021 and will Continue to Grow and Reach US$508.8 Billion by 2027,” Research and Markets

[3] Aon’s Carrier Trend Report (Midyear 2020)

[4] Aon’s 2021 Global Medical Trend Rates Report