Employers Cut Health Costs With Incentives for Patients, Doctors

Employers can cut their health-care expenses by paying top medical providers a flat rate for a bundle of related services while offering incentives to the patients who use them, a study suggests.

The study, published Monday in the journal Health Affairs, found that employers using a flat-rate approach run by Carrum Health saved about 11% overall on procedures including joint replacements, spinal fusions and bariatric surgeries. The average prices when people used Carrum providers were between 6% to 41% lower compared with other providers.

Rising medical costs have burdened American families and businesses for decades. U.S. health spending, nearing $4 trillion annually, is projected to grow faster than the economy for years ahead. Meanwhile, employers have pushed more risk onto patients with higher deductibles and encouraged them to shop for medical care. That approach, though, angered patients and prompted some to skip needed treatments.

The Carrum program, described by the company as a sort of warranty on care, works with employers to contract with select doctors at well-known hospitals.

Fixed Sum

The providers get a fixed sum determined ahead of time to cover the procedure and any follow-up care or complications that occur, even if the patient has to return to the hospital after surgery. Employers, meanwhile, encourage patients to choose doctors in Carrum’s program by waiving out-of-pocket costs like deductibles that they would otherwise have to pay.

he health plan isn’t limiting patients’ choices. Instead, it’s giving them an incentive to choose doctors that have been selected for superior performance. In turn, the providers get paid directly, rather than having to bill insurance companies. They also get a higher volume of patients, though at discounted pricing.

To evaluate the impact of the program, researchers from The RAND Corp. and Carrum Health looked at medical claims data from eight large employers and purchasing groups, including public and private sector entities. They compared costs for more than 2,000 surgeries over five years, both before and after Carrum’s program was implemented.

Rare Program

Christopher Whaley, a RAND researcher who ran the study, called Carrum the rare program that saves money without “burdening patients, providers or employers.”

Whaley has no financial ties to Carrum; two of the paper’s four authors are Carrum shareholders.

Carrum, a seven-year-old South San Francisco company, is among a number of companies that offer employers programs to steer patients to better quality doctors. More than half of employers use such an approach, called centers of excellence, according to a survey last year of almost 400 firms from benefits consultant Willis Towers Watson.

New models like bundled payments have also been tested in Medicare, the federal health insurance program for people 65 and older, with mixed results. The Rand-Carrum research is the first to evaluate them in a commercial market, where prices vary more widely than they do in Medicare.


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