The Company that Solved Healthcare

Healthcare is mentioned approximately every 20 seconds in one form of media or another. Debates rage on from all sides, but one fact remains unwavering: companies of every kind are still wrestling with spiking healthcare costs, and unless they find a way to rein them in, they’ll buckle under the financial burden somewhere down the road.

But one mid-sized Midwestern company, led by a former Marine deeply concerned about the care of his employees, has waged war on healthcare costs and won. John Torinus Jr. is chairman of Serigraph, a company that spends one-third less than the national average to insure its workers. If the U.S. adopted similar reforms, the savings would amount to $800 billion dollars annually—enough to cover the nation's uninsured several times over. Employees also reap the benefits of Serigraph’s health plan, with incentives ranging from company paid health accounts, to cash bonuses, paid time off for wellness, low premiums and free primary and preventive care.

Those kinds of results prompt a few key questions, which Mr. Torinus kindly answers here.

Q: Of all the challenges facing a CEO, why focus on healthcare cost?

A: In 2003, I realized health costs could take down my company. We ended that year with a total healthcare bill of $5.5 million for employer and employees combined, up almost 12 percent from 2002 and 23 percent from 2001. And, we were looking at a 15 percent hike in 2004, an increase of more than $800,000. We had other expenses under control, but our health costs were metastasizing. We could not afford hyper-inflation in this major cost bucket. We had to do something about it and do it fast.

Q: So what was your plan of attack?

A: Reform, reform, reform. First, involve employees in their own healthcare by implementing a consumer-driven health plan. Second, return to the use of primary care doctors over specialists. Third, help employees find the best providers.

Q: That seems so simple... was the biggest obstacle in reining in runaway healthcare costs?

A: Transparency regarding pricing and costs of healthcare. There was system-wide secrecy. In my view, consumers have an inalienable right to know healthcare prices. After all, healthcare costs are so high that they knock some households into financial stress or even bankruptcy. So we dug into the numbers, came up with 23 procedures, the ones that account for a majority of the dollars spent on elective procedures, and posted them on our intranet site for all to see. Instant eye-opening transparency.

Q: When did you first know you were making progress?

A: I knew we were starting to win when a Serigraph employee, we'll call him Ted, came into my office angry at what a local clinic would have charged for the removal of a small mole. Before Serigraph converted to a consumer-driven health plan, he never would have asked the price. But because he had voluntarily selected a version of our health plan with a $1,000 deductible and 30 percent co-insurance, he asked.

Predictably, the doctor did not know the answer. But Ted persisted. He elicited the price for the 45 minute procedure, and he was flabbergasted; it retailed at $8,900! Instead of passively accepting the quote, he decided to do some shopping. Another plastic surgeon, 30 minutes away, quoted $565 for removing the mole under a local versus general anesthetic. Ted would have to go back for a second procedure if the removed tissue appeared suspicious for cancer. That proved to be the case, so he had a second $565 procedure to remove the rest of the suspect tissue. It was successful, so the final bill came to $1,130—a savings of $7,770 shared by him and the company.

He recounted the outcomes, medical and economic, to his primary care doctor at the local clinic, and the surprised doctor responded, “You moved the business? Your company is one of our biggest customers.”

In that instant, the marketplace started to work. Moving business, or threatening to move business, as anyone in business knows full well, often produces amazingly positive responses in a vendor.

Q: What advice would you give to other CEOs facing the same issue?

A: The healthcare system isn’t a system that works for payers or their employees. It's a “non-system.” It’s busted. It works pretty well on the medical side of the equation, but it’s mayhem on the business side.

In that dysfunctional environment, routine stewardship is not enough. Because healthcare delivery, payments and quality processes are hugely flawed, existing business models need to be completely re-engineered.

The missing link is management—aggressive management—the same kind of management that is applied in many other sides of successful businesses. Many companies have professionalized their sourcing functions, often taking it to the level of global sourcing. Advanced degrees are offered in the field. So why not professionalize the sourcing of healthcare? That tough, professional sourcing is rare is a mystery to me.

Most companies simply run a routine bidding process among insurers every year or two and then take the best deal offered. Even self-insured companies, who are their own risk pool, use a similar routine bidding process to find a network and discounts. This is a shallow exercise that, more often than not, does little to change practices of providers. Year-in, year-out, it’s business as usual.

I hate the phrase, but what’s needed is a paradigm shift. CEOs and CFOs need to grab the non-system by the scruff of the neck and shake it up.

Mr. Torinus shares his highly prescriptive, yet surprisingly common sense, solutions in the book, The Company That Saved Health Care: How Serigraph Dramatically Reduced Skyrocketing Costs While Providing Better Care, and How Every Company Can Do the Same.