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How hospitals can save 25% with better benefits design

January 30th, 2013

by Kevin L. Shrake

Employee benefits is fast becoming one of the largest expense items for employers and this issue will be magnified as healthcare reform unfolds.

There are approximately 5,000 U.S. hospitals in and 1000 of them would fall into the category of rural and community hospitals. Typical staff counts in the smaller facilities range from 150-300 people. Large multi-hospital systems might have as many as 15-30,000 employees.

But there is strength in numbers. It is often difficult for smaller organizations to acquire cost-effective benefit rates, and even large organizations can benefit from being part of a larger risk pool of covered lives.


Leveraged aggregated benefit programs: Leveraged aggregated benefit programs specialize in the design and management of life, disability and absence management programs for hospitals and healthcare organizations. They use the power of numbers to have companies compete for the business of an aggregated pool of lives, creating cost-saving value for organizations, regardless of size.

Employees generally know what their benefits are, but normally cannot identify the name of the company that provides programs, such as life insurance and disability. By using leverage to drive down costs, employees, employers or both will gain depending on who is funding those specific programs.

Program advantages:

  • Drives immediate cost savings while ensuring a long-term sustainable cost-saving strategy
  • Historically provides clients with a benefit cost reduction of at least 25 percent
  • Budget neutral--no upfront fees to client. Payment for services come directly from the insurance carrier after agreed upon results are delivered.
  • Results oriented--Program not only produces savings but also improves and enhances employee benefits.

Best practice program characteristics: When seeking best practice in this space, look for a company that offers a scale of at least 125 facilities and 250,000 lives. Also look for simplicity in terms of human resource time. Companies should be able to generate results in less than 60 days with minimal assistance from the hospital staff.

This process should not be tied to a specific time frame or enrollment date. The most progressive programs use trusts that have top companies compete for business whenever the client organization is ready to pursue cost savings. Other key components of a best practice program should include:

  • Strategic plan review - Analyzes all aspects of a client's benefits strategy, plan design, funding structure, contract arrangements, pricing levels, and provides short- and long-term recommendations.
  • Ongoing claims review and forecasting - Examines current and past claims experience to project future trends that will help to support the ongoing decision-making process for financial budgeting and plan design.
  • Benchmarking - Provides a variety of benchmarking data including, peer group comparison, plan design best practices and funding strategies.
  • Wellness strategy - Develops an approach to wellness that takes into consideration the culture, demographics and claims experience to provide a practical platform to improving the health of employees, while also impacting claims experience over the long term.
  • Communications support - Provides input and support to clients in the development of a broad range of benefit-related communications.
  • Legislative/compliance support - Provides regular updates to clients on the status of pending and final regulations that impact how benefit programs are structured and administered. There are effective, technology-driven systems that can be established to improve quality, enhance patient satisfaction, lower cost and eliminate the penalties associated with poor readmission rate performance.

Take-home message: Healthcare organizations can lower their benefit costs by 25 percent or more by using a leveraged aggregated program. In addition to the cost savings, planning, communication and forecasting can be enhanced through benchmarking and data analysis.

Kevin L. Shrake ( is a 35 year veteran of healthcare, a fellow in the American College of Healthcare Executives and a former hospital CEO. He currently serves as the Executive Vice President/Chief Operating Officer of MDR™, based in Fresno, Calif.


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