Cost Strategies and Vendor Contracting Employers’ Top Health Plan Concerns

The latest study from the Segal Group includes plan sponsors’ picks for the top five cost-management strategies.

As health care plan utilization places second in rising medical costs, the runner-up still isn’t going unnoticed among plan sponsors.


When asked to rank cost-management strategies implemented by group health plans in 2017, survey respondents to a recent survey by the Segal Group listed prescription drug cost management strategies and improved vendor contracting as plan sponsors’ main concerns. “Using specialty pharmacy management; intensifying pharmacy management programs; contracting with value-based providers; increasing financial incentives in wellness design; and adopting a high deductible health plan (HDHP),” were the top five recorded by plan sponsors.


The findings, according to the study, demonstrate how sponsors are pushing utilization by encouraging high quality, low cost providers, as well as following strategies to lower costs, including the “use of custom and limited provider networks, expansion of dedicated primary care clinics that are on or near work-sites and, for some industries, continued migration to tax advantaged health savings accounts (HSAs) and HDHPS.”


In response to these results, Edward Kaplan, national health practice leader for Segal, suggests sponsors adopt a “three-pronged approach to the challenge of health care cost management that encompasses vendor management, plan design management and population health management.”


The latest predictions show a slim rise in medical plan cost trend growth—slightly contrary to 2017 predictions. Study findings revealed price inflation as the driver behind surging medical costs, including 8.8% of prescription drugs.


“Health plan cost increases continue to significantly outpace general inflation and average wage increases, underscoring the need to monitor performance targeting cost-management efforts,” says  Kaplan.  


Yet, prescription drugs is not price inflation’s only target. Nearly 3% (2.8%) of physician services and 4.6% of hospital services are affected from the price increase as well. Eileen Flick, senior vice president and director of Health Technical Services at Segal, credits this inflation to an incorrect usage of emergency rooms and urgent care facilities, along with superfluous and pricey diagnostic radiology procedures.


In order to prevent inapt and unnecessary practices, Flick advises sponsors to set out on assuring employees are making wise choices regarding health care costs.   

“Plan sponsors should ensure their plan designs are properly aligned with the costs of care, and that their participants are making smart choices in order to get the right care at the right price with the right provider,” she says.


More about the study can be found here.