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Large Employers Cut Costs by Opening Health Centers

On-site health centers are quickly becoming the solution that many insurance brokers are turning to in order to help their clients increase employee productivity, health and retention while reducing health care claims and direct costs.

These on-site health centers, where the focus is on risk reduction, are part of a growing trend.
According to the “Worksite Medical Clinics 2012 Survey Report” from health and human resources consultant Mercer, a significant percentage of employers with 500 workers or more are expected to have on-site clinics before the end of 2014. Specifically, Mercer’s report said that 26 percent of employers with 500-4,999 employees, and 52 percent of employers with 5,000 or more employees, are expected to have the clinics in place before the end of this year.

Health insurance brokers play an important role in adopting the on-site health center. Brokers are often the catalyst for adoption, as they understand how the benefit plan structure and the on-site health center can work together to drive engagement and reduce the cost of health care for the employer. Brokers who have self-funded clients with 1,000-plus employees in one location can take advantage of this service to increase access to care, provide high-quality care and improve the benefits mix offered to the employees.


This case study from the Lexington-Fayette Urban County Government (LFUCG) is an example of how one broker in Lexington, Kentucky, used this strategy to help change the increasing cost trend and provide an added benefit for the employees. The result of this initiative has been a $24 million savings for LFUCG.

Case Study
On April 12, 2011, in his annual budget address, Lexington Mayor Jim Gray announced that the city was $9.9 million over budget in its health care account in 2010, and was projected to be $12 million over budget in 2011 and $14 million over budget in 2012. LFUCG operates its health plan on a self-insured basis and has approximately 6,700 covered lives. The mayor made it clear that the trend in spending was unsustainable and unfair to taxpayers.  

He noted that the LFUCG health plan, in terms of the richness of the benefit, fell in the top 1 percent of plans in the nation. Yet it failed to provide incentives for individuals to seek and obtain primary and preventive care. The health plan also did nothing to address the underlying risk driving the skyrocketing cost of care.  

LFUCG engaged its broker to recommend revisions to the health plan as well as a strategy to address escalating costs. While analyzing the current and projected budget shortfalls, the broker concluded that the plan design was the primary driver of the shortfall. The plan covered 100 percent of the most expensive health care procedures (i.e., no deductibles and/or coinsurance) while being priced at 30 percent below the actuarial benefit equivalent. Having 88 percent of all employees enrolled in this plan presented a significant challenge to bringing the cost of health care consumption within budget while maintaining a benefit structure that the employees valued. That plan was eliminated. Today, approximately 55 percent of the employees are enrolled in a high-deductible health care plan.

Critically important to this restructuring strategy was the creation of the Dr. Samuel Brown Health Center (SBHC). This health center was established to provide the LFUCG workforce with access to high-quality preventive and primary care at no cost to them. In addition, LFUCG implemented a full-service pharmacy where employee co-pays are half what they would normally be at a retail pharmacy. Both of these initiatives counterbalanced the need for increased co-pays, deductibles and co-insurance for LFUCG’s traditional benefit structure. The emphasis shifted away from sick care and toward eliminating cost barriers for prevention and wellness.


Launch of the New Health Plan and Population Health Management
On Jan. 1, 2012, LFUCG launched its new health plan and partnered with Marathon Health to open the SBHC for health plan members. The health center is staffed by a full-time physician, two full-time physician assistants, a registered nurse, two full-time medical assistants and a receptionist.  
The health center and its accompanying pharmacy are components of a larger population health management program that includes the following elements:

  1. Risk identification and stratification: Claims data, biometric screening data and health risk assessment data for employees, spouses and dependents were combined in a single database that was then mined to identify high-risk patients.  
  2. Information in the hands of the patient:  Long-term, sustained risk reduction is possible only when patients become involved in the process of managing their own care.
  3. Medical staff training in behavior change and requisite core competencies needed for success:  To succeed in population health management, it is critical to have medical teams knowledgeable in interviewing patients and helping them modify their behavior.
  4. Engagement and goal setting: The information on high-risk patients led to the creation of a patient task list that the health center staff used to conduct outreach.  
  5. Incentives: An important component of plan redesign is providing incentives for members to participate in annual health screening and preventive care, to “know their numbers” and to improve their health status.  

With the switch to the high-deductible plan, per-member-per-month claims fell from $441 in 2011 (before launch of the health center) to $345 in 2012 (the first year of the center’s operation). This was a 22 percent decrease. The downward trend continued in 2013, with per member per month spending falling another 8 percent, to $318. From Jan. 1, 2012, to Dec. 31, 2013, this change in per capita spending resulted in a total of $24 million savings to LFUCG.

If you have a client that has 1,000 employees, is self-funded and has its employees in or near one location, the on-site health center should be packaged with a health plan designed to encourage its use. Offering free care as an alternative to higher market co-pays will increase engagement and provide care that focuses on prevention and health improvement. When this occurs, populations are healthier, health care costs go down and clients are happier.

The first step in pitching on-site health care to your employer clients is to explain that employers should not be focused on reducing cost by repositioning the current “retail” health care delivery system into their health plans. Instead, they should focus on the best practices of “population health improvement.” This involves identifying those with high and moderate health risks within their population and pursuing strategies to mitigate the risk and reduce the prevalence of illness in the future.


Explain to employers that they should ask potential clinic operators how they identify and address risk, not what their unit cost pricing is for primary and acute care. Producing a return on investment and reducing health spending trends is achieved only by negating high-risk members’ future health care consumption. This is the entire purpose of an on-site total population health management program.

Success is measured by transitioning high-risk members to moderate- and low-risk categories while helping members who have diseases to achieve the standard of care.  

Setting up an on-site health center is not complicated. All that’s needed physically is about 900 square feet of space (depending on the employer’s population size) and some medical equipment and supplies. The most important aspect is evaluating a potential vendor relationship based on its strategy and methodology to improve employee health.


L. Briggs Cochran is president of Benefit Insurance Marketing, Lexington, Ky. He may be contacted at [email protected] .

David M. Demers, MPH, is vice president, business intelligence, with Marathon Health, Burlington, Vt. He may be contacted at [email protected] .

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