Rising Employer Healthcare Costs, Digital Health Consolidation, and Unproven Savings Claims: Q&A with Michael Abrams
Key Takeaways
- Provider consolidation is a primary cost driver, shifting negotiating leverage toward delivery systems and reinforcing incentives to provide more—and more expensive—services than clinically necessary.
- Employer-focused digital health companies address unmet needs in care navigation and utilization management, aiming to steer members to least-cost appropriate settings and reduce low-value utilization.
Digital health's point-solution era is giving way to broader platforms, and the cost-savings claims those platforms make to employers often don't hold up to methodological scrutiny.
With healthcare costs dominating the conversation in recent years, the topic of employer-covered healthcare is a key issue. With most Americans getting their health insurance coverage through their employers, this is a key area that impacts how much people feel the burden of healthcare costs.
One way that employers are looking to reduce costs without impacting benefits is by turning to digital health platforms. However, the evidence is still unclear as to how much of a positive impact that these platforms actually have.
Pharmaceutical Executive spoke with Michael Abrams, managing partner at global healthcare consultancy Numerof & Associates about strategies employers are using to reduce costs while still providing effective coverage. He also discusses the impact of digital health and how it appears to actually be impacting the market.
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Pharmaceutical Executive: What’s causing employer healthcare costs to rise?
Michael Abrams: Employer healthcare costs are rising alongside the general cost of healthcare delivery, and frankly, I don't see much end in sight. The underlying causes are many, but the predominant factor in my view is consolidation. In many markets, consolidation has given healthcare delivery organizations significant market power over insurance companies — power they are able to use to exact a premium for their services. That dynamic, combined with a broader set of structural incentives in healthcare delivery that encourages organizations to sell patients more services, and often more expensive services, than they actually need, is driving much of what we are seeing.
PE: How can consolidation have a positive impact on digital healthcare platforms?
Abrams: The digital health arena — and here I'm specifically talking about employer-facing companies — saw a significant proliferation of new entrants in its early stages. In many ways that reflects entrepreneurship and creativity filling a gap that the healthcare system has largely left open. For years there has been extensive discussion about hospitals doing care navigation, about hospitals ensuring patients receive care at the least costly appropriate point in the care continuum. These are things health systems should do. Largely, they don't.
That gap created an opportunity — especially for employers — to fill the void at scale. Employer-facing digital health companies stepped in offering care navigation, utilization management, and the kind of proactive health engagement that helps ensure people don't end up receiving more care than they actually need. It is an important addition to the healthcare continuum.
In the early stage of this market, what we saw was a proliferation of companies each occupying a very narrow slice of healthcare — what are often called point solutions. Some focused on musculoskeletal issues. Others addressed metabolic conditions, a category that has expanded significantly with the rise of GLP-1s and the chronic conditions they treat.
I think we have seen the peak of investment in this space, and we are now seeing consolidation among these point-solution providers. Companies are looking to broaden their offerings — sometimes with adjacent capabilities, sometimes not — in order to reduce the number of separate doorways employees have to navigate to take advantage of their healthcare benefits. The general direction is toward broader platforms that make it easier to share health histories across services and give employees a more unified experience as they move through the system.
PE: What evidence gaps do digital healthcare platforms still need to close?
Abrams: There are a number of issues worth addressing here. In many cases, the comparators used to demonstrate savings — claims like "my company saved your company X over what you would have spent otherwise" — may not hold up to methodological scrutiny on closer analysis. What is sometimes presented as compelling evidence of cost savings may be considerably less compelling when you examine the underlying comparison more carefully.
PE: What options do employers have to reduce healthcare costs?
Abrams: These organizations are offering something genuinely valuable. In some cases they are providing care virtually — physical therapy, for example, can be delivered digitally in a number of clinical contexts, and adherence to drug therapies can be meaningfully improved through virtual engagement.
One of the most important features of what these companies offer is the ability to direct employees to the clinicians who are most effective and most economical in how they treat patients — the providers who consistently get the best results. That kind of intelligent navigation is extremely valuable, and it is precisely the kind of service you would have hoped traditional healthcare systems would provide. Generally speaking, they don't see it as being in their interest to do so.
That is the gap these digital health organizations have grown up to fill — and it is a meaningful one.
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