Case study in Harvard Business Review showcases retailer’s blueprint for employer-generated healthcare reform and shows clinical laboratories that employers are price-shopping

Healthcare reforms that curb costs while improving outcomes have been an elusive goal at both the federal and private insurance levels. Now, Walmart (NYSE:WMT) may have found a plan that works, and it may have implications for clinical laboratories.

In an effort to curb healthcare spending while ensuring workers have access to the best quality care at competitive costs, Walmart is paying the travel costs to send sick employees to out-of-state hospitals and doctors that are top-ranked.

If the retail giant succeeds where other stakeholders have failed, clinical laboratories may find major employers in their communities decide to pursue lower prices for other types of healthcare, including medical laboratory test services.

Walmart and its partners published a recent case study in the Harvard Business Review hoping to encourage other companies to follow suit. It’s an intriguing story.

‘These people are skinnin’ us alive!’

An employee was suffering from mild, but worsening, neck pain and a tremor in his hands. After a local surgeon recommended spine surgery due to spinal column narrowing and disc degeneration, Walmart paid for the worker and his wife to travel to Geisinger Medical Center in Pennsylvania for a second opinion. Geisinger evaluated his condition and diagnosed Parkinson’s disease. After receiving treatment for the disease, the patient returned to work.

Walmart’s actions prevented an unnecessary $30,000 spinal surgery.

“Employers will shoulder a substantial portion of the cost of US healthcare for the foreseeable future,” the case study states. “Until recently [employers have] had few options but to shift some of the growing cost to employees and fight for rate decreases. Those tactics have not stemmed rising costs and have done little to address quality. But as we and others have found, high-quality care is reliably the most cost-efficient.”

According to the case study, founder Sam Walton first urged his leadership team to find a solution to out-of-control healthcare costs. “These people are skinnin’ us alive,” Walton was quoted as saying in 1991. “They’re charging us five and six times what they ought to charge us … so, we need to work on a program where we’ve got hospitals and doctors … saving our customers money and our employees money.”

Walmart’s answer is its six-year-old Centers of Excellence (COE) program. In partnership with third-party administrator Health Design Plus (HDP), Walmart directly contracts with the following leading medical centers for procedures, such as hip or knee replacements, heart or back surgery, or cancer treatments:

Patients incur no out-of-pocket costs for travel to a COE facility and most plan procedures and consultations are fully covered. Until 2018, the COE program was optional for Walmart employees. Now, employees may be on the hook for the entire cost if they opt to have a covered procedure performed locally.

‘It’s become a mission’

That’s what Lisa Woods, Senior Director of US Health Care at Walmart, wrote in the case study, which she co-authored with Jonathan Slotkin, MD, Director of Spine Surgery and Associate Chief Medical Informatics Officer at Geisinger, and Ruth Coleman, RN, founder of Health Design Plus.

Coleman goes a step farther in her praise for Walmart’s direct-contract model.

“Taking care of patients the right way is the best way to get good outcomes while reducing employer costs,” she said. “This could revolutionize healthcare.”

Lisa Woods (above), Senior Director of US Health Care at Walmart, is confident the COE program can be a model for other employers looking to address the cost-and-quality dilemma. “It doesn’t mean we have all the answers, but we want to share and teach. Our goal is to create positive changes in the healthcare space.” Nevertheless, higher-priced clinical laboratories that service healthcare providers contracted with Walmart may find test orders for Walmart beneficiaries diminishing in the future. (Photo copyright: Fortune.)

Other Company Efforts to Lower Healthcare Costs for Employees

Walmart is not alone in seeking new ways lower healthcare costs. The case study notes that healthcare spending nationwide “has increased by 44% per enrollee from 2007 to 2016, reaching an annual amount of nearly $700 billion in 2017—roughly what the Pentagon spends on defense.”

General Electric, Lowe’s, McKesson, and Boeing also are directly contracting with high-quality healthcare providers to control costs and improve outcomes.

In Utah, medical tourism of another kind is bringing down employer healthcare costs. As Dark Daily previously reported, a state program dubbed “pharmaceutical tourism” incentivizes state employees to buy certain prescription drugs in Mexico.

Patients are flown with a companion from Utah to San Diego and then transported by private car to Tijuana where their prescriptions are filled. Even with travel expenses and a $500 cash bonus to program participants, the state’s employee health plan saves 40% to 60% percent each time a prescription is filled in Mexico.

As the future of the Affordable Care Act and other healthcare reforms remain uncertain, clinical laboratories and anatomic pathology groups should expect more employers to turn to outside-the-box methods for ratcheting down healthcare costs. They also should be looking for innovative ways to add value to the services they provide patients and healthcare systems to maintain their current rate of test orders.

—Andrea Downing Peck

Related Information:

Walmart Is so Desperate to Fix Health Care, It Flies Employees to Top Hospitals in Other States for Treatment

How Employers are Fixing Healthcare

Utah Public Employees Receive transportation and a $500 Cash Bonus to Purchase Prescriptions in Mexico