Interesting Perspective how Companies buy Health Care

Interesting Perspective how Companies buy Health Care

I recently read an article by Craig Lack about employers having the same fiduciary and legal responsibility for their 401(k)’s as they do with their group health care plan. Employers must act in the best interest of the participants.

A Forbes magazine article discussed CFO’s facing millions of dollars in personal liability suits due to a lack of fiduciary oversight. We know the DOL keeps a close on retirement plans, health plans are next.

Mr. Lack mentions the five biggest mistakes CFO’s make when designing, purchasing and managing their health plans.

The first mistake mentioned is the gamble CFO’s of mid-market companies take with the organizations health care plan by taking “19 to 125 times more risk than they should”.

Are you surprised to hear that at large companies, their P & L is exposed to unnecessary health care over spending? Why are healthcare managers betting millions of dollars “by ignoring reducible risk, and mistakes that hurt the bottom line”. What does it take to convince C-suite executives that today “best practices” do not work?

One of the most candid comments of this article was “surrendering responsibility to unqualified departments and managers who do not have  P & L’s”. It goes on to say that a companies health care investment is often treated as an operating expense and left to those who may not have the expertise to make the most informed decisions. Decisions are then made by consultants recommending boilerplate solutions of “best practices that only major in minor outcomes”.

The third mistake CFO’s make is health plan management tends not to be included in the normal business supply chain cost-control strategies. Why can’t health care supply chain be negotiated like your other supplies? To be successful at cost containment, the focus must be on wasteful spending, excessive fees, poor quality and non-transparent pricing.

So Ms. and Mr. CFO, ask yourself, which two “best practices” are most effective in reducing the frequency and severity of your claims this year? We all know the answer, barely any improvement and a lot of money left behind. “The CFO must be directly involved and recognize that the healthcare investment is a capital allocation strategy-it requires the supervision of an executive with P & L responsibility”.

Most CFO’s do not know if their company health care plan pays retail, wholesale or institutional charges. As was indicated in the first paragraph, it is the CFO’s fiduciary responsibility just like in their 401(k), to know the brokers fees, commissions, bonuses, overrides, incentives, profit sharing, contingent fees, expense reimbursement allowances or performance based compensation, it can add up quickly.

Not knowing the law is not a defense when explaining to a judge that you paid 10 times as much for a poor performing, low-quality health plan.