Now that directed care – or open referral – has had time to bed in, are there any indications yet that the strategy will deliver the cost savings the private medical insurance industry so badly needs? Sam Barrett reports
With virtually no track record, adopting directed care – also known as ‘managed care’, ‘open referral’ and other variations on that theme – has required corporates to take something of a leap of faith with their medical insurance. But, as the results start to come through, there are indications that this approach is helping to drive down claims costs.
One of the biggest endorsements was made by LaingBuisson in this year’s Health Cover UK Market Report. It noted that claims costs had fallen by 5% in real terms during 2013. And while it attributed this to the range of initiatives applied by insurers to generate cost savings, it highlighted the direct referral model as the most effective.
It’s a story being echoed by the insurers.
For instance, Bupa points to the experience of one of its clients, Cisco, which switched its 2,800-plus employee-strong health trust to open referral in April 2012. Since then it has seen its health insurance costs fall by 8.5% a year.
Another form of directed care – the clinical pathway – is also being heralded as an effective cost control mechanism. Models such as Aviva UK Health’s BacktoBetter and AXA PPP healthcare’s Musculoskeletal Health Pathways triage employees and direct them to the most appropriate form of treatment with some impressive results.
For example, one year after launching BacktoBetter in the corporate space, Aviva says it noted a reduction of up to 30% in the average cost per claim for a musculoskeletal condition, as spend is directed away from surgical treatment and towards more concentrated interventions such as physiotherapy. This has meant that corporate clients are seeing a reduction in spend on musculoskeletal condition of on average 5%, with some achieving a reduction in excess of 10%.
Improved outcomes also mean the insurer has seen the volume of employees needing onward referral to specialists fall from 65% to 25%.
“We wanted to get away from the traditional model and construct a clinical pathway that achieved the right outcome for the patient while also ensuring that the money was spent in the right way,” explains Dr Doug Wright, medical director at Aviva UK Health.
But while the statistics suggest some impressive performance from directed care, not everyone is convinced that the savings generated are so extreme.
“We’ve seen a fall in claims cost inflation across the board, not just those companies operating directed care,” says Chris Bailey, partner and head of corporate consulting at Mercer.
Other employee benefit consultancies (EBCs) have noted a similar trend. For instance, Buck Consultants has analysed the claims costs from its clients using Bupa’s open referral. These show that while there was an average reduction of 5% in the first year, claims costs hit a plateau in the second year and appear to be rising again.
“It did bring costs down initially but they’re rising again now,” says Chris Evans, senior consultant at Buck Consultants. “The trouble with any statistic is it can depend where you cut the data.”
In addition, like Bailey, Evans has also seen claims levels on a significant number of schemes undershoot the funding level.
“We expected an increase of between 5% and 10% but many schemes saw increases below this,” he says. “There were fewer large claims, which may be down to insurers guiding more people into the NHS, so we’ll watch to see whether this continues in 2014.”
Certainly other cost control mechanisms can contribute to savings, with the economic conditions of the last few years making employers happy to try any – and every – way to keep cover affordable.
“Employers will have adopted other cost control mechanisms such as restricting pensioner cover or limiting cancer benefits,” says Stuart Shaw, principal consultant at Xafinity Healthcare, the EBC. “It’s difficult to say how much of the saving can be attributed to directed care.”
Supporting this, insurers that have not gone done the directed care route have also noted improvements in their claims costs. For instance, Charlie MacEwan, corporate communications director at WPA, says that it also recorded better than expected performance on claims over the last couple of years.
He likens the management of claims costs to Sir Dave Brailsford’s approach to transforming British cycling.
“He made lots of little changes to achieve medal winning performance,” MacEwan says. “It’s exactly the same with medical insurance where there are plenty, more subtle ways to control costs than restricting choice.”
Although some doubt is being cast on whether directed care is as effective as the statistics claim, it is also fair to say that the market is refining the approach as it identifies the most appropriate ways to apply it. In particular, while Bupa started out effectively mandating it to its corporate clients, it and other insurers have backed away from this all or nothing stance.
“Employers need an element of choice,” says Paul Moulton, intermediary distribution director at AXA PPP healthcare. “Some clients will adopt it in totality but we also see ones that use it for the workforce and maintain full choice for management. It lessens the effect of directed care but it meets the client’s requirements.”
Clinical pathways also work better in some situations than others. Although the current models are limited to musculoskeletal and psychological health, insurers are looking at extending the model to other conditions.
For example Dr Wright says he would like to see pathways created for conditions such as hernia repair, cataracts and gall bladder operations.
“These operations are relatively easy to standardise and if you can increase the number of patients going to a surgeon that does the same operation all the time you achieve cost savings but also better outcomes for patients,” he adds.
Although effective for procedures that can be standardised, more personalised care, such as cancer treatment, still requires the more traditional approach. Moulton believes this may change with time.
“Medical advances will drive us towards simpler operations and treatments that could be handled effectively through a clinical pathway,” he says. “A good example of this is angioplasty, which used to be a serious operation requiring a lengthy inpatient stay – it can now be carried out on a day surgery basis.”
It is also fair to say that directed care does not suit every client. While it can be an effective cost control mechanism for a company offering its employees a way to access healthcare quickly, it is anathema for those who provide medical insurance as a perk to give access to the top specialists and facilities.
“It can feel like a lot to give up if you’ve bought into the concept of ultimate choice,” says Shaw.
Location can also make a difference according to Bailey. He has seen some significant savings being realised by clients in London and the South East but believes the effect is more limited in other parts of the country.
“Outside the South East, people are already accessing lower cost care so the savings that can be negotiated will be smaller,” he explains. “There’s also a smaller population of therapists so competition will be more limited.”
Size also makes a difference. While the claims spend for a large company will be sufficiently high for it to be able to realise a decent saving if it shaves 5% to 10% off its costs, this does not apply on smaller schemes.
“If you have a smaller group, perhaps where you only provide directed care products to some of the workforce, the financial benefits of directed care are more limited,” says Shaw.
But while the effects are diluted, some form of directed care will be rolled out to smaller companies. Aviva UK Health is looking to refresh its SME offering in 2015, incorporating some of the BacktoBetter proposition, while AXA PPP plans to roll out a version suited to SMEs.
“It will be similar to our large corporate product with features such as the simplified appointment booking and approved specialists but it will be more tailored to the needs of smaller companies,” adds Moulton.
While insurers are taking their experiences of directed care in the large corporate market to design products suitable for smaller groups, product evolution will also come as a result of external influences.
One of the Competition and Markets Authority’s recommendations for the private healthcare market will be particularly relevant according to Bailey.
“The CMA wants more data on private hospitals and specialists to be available to the public,” he says. “This will force the insurers to be more transparent about the specialists they select. Real consumer choice is coming into play.”
But, while greater transparency will make it easier for insurers to justify their selections, it could also create problems for insurers using directed care.
“What if the publicly available information doesn’t support an insurer’s specialist recommendations?” says Shaw. “Insurers will need to factor this information into their specialist choices.”
However the availability of more data shapes directed care, it is fair to say that it has already evolved to successfully carve out a market. But, while it can deliver savings, client needs mean it will always have a limited appeal.
“Directed care has a place in the market, and I think that the simplicity around booking an appointment is something that should be adopted more widely,” says Bailey. “But, while it has its advantages, it’s not the silver bullet the market needs to deliver sustainable pricing.”