Direct Contracting

Staying mad: Walmart gets even–by contracting directly

Lola Butcher

On a big video screen at the conference, the audience saw a 74-year-old man complaining—just as you can see him on YouTube today. He’d had an MRI the day before, he griped, and including related medications it had set him back about $1,000. “And the hospital didn’t do a thing but get me into town—and got half the money. They’re chargin’ us five and six times what they oughta charge us.”

“The End of Provider Entitlement” Find it at:

That was in 1991, and the angry man was Walmart founder Sam Walton. He died the following year, but his grievance lives on. It was recalled at the HLTH conference in Las Vegas last year, where the video was shown, by Marcus Osborne, Walmart’s vice president of payer relations. In a presentation provocatively titled “The End of Provider Entitlement,” Osborne noted that in the 28 years since Walton spoke, costs for medical services have continued to soar and to vary drastically among facilities, suggesting strongly that—as we keep hearing—there continues to be big-time waste in U.S. health care.

“In 1991 he was pissed off,” Osborne told the crowd. “Here we stand in 2018 and America is still pissed.”

The presentation had two main takeaways. First, for the largest American employers, all the hand-wringing and gnashing of teeth about low-value health care may finally have turned up an answer. Some provider organizations manage to deliver on the promise of high-quality care while keeping costs under control. Most do not. But it’s getting easier to identify which is which—and to take action. Second, Walmart, the world’s largest employer—2.2 million employees, or “associates,” worldwide, 1.5 million of whom are in the U.S., is going directly to the high-value health care systems and physicians, steering clear of the low-value providers and the health plans that have contracts with them.

The retail giant is using centers-of-excellence contracts by which it pays high-value provider organizations to treat specific medical problems—back pain, joint problems, suspected cancer—in its employees, wherever they live. Walmart is also contracting directly with ACOs that accept responsibility on a per capita basis for the quality and cost of care for Walmart employees in a local market.

Osborne warmed up the audience for his colleague, Lisa Woods, Walmart’s senior director of U.S. Health Care, with this teaser: “As angry as Americans are, if they really knew what was going on, they’d be angrier.”

Woods shared some history. Her company’s first center-of-excellence contract—for organ transplants—dates back nearly 20 years, she said. Since 2013, Walmart has entered into such contracts for spine and heart procedures; hip and knee replacements; treatment of breast, lung, and colorectal cancer; and weight-loss surgery. Woods said that for most procedures this was a fully paid benefit—travel included—for those eligible.

Woods cited widely heard estimates that 30% of U.S. health care spending is waste—and that misdiagnosis rates can run as high as 30% too. “We are seeing that and more,” she said.

What, exactly, has Walmart’s experience shown? She started reeling off data points:

Spine surgery. Of employees who have been told by their physicians or local hospitals that they need spine operations, the centers of excellence found that more than 50% actually didn’t. Using the centers reduced readmissions in spine-surgery patients within 30 days by 95% compared with facilities at home. And employees undergoing procedures at the centers of excellence were able to return to work an average of three weeks sooner than in other facilities.

Joint-replacement surgery. Twenty percent of employees who’d been advised locally that they needed joint-replacement surgery learned at the centers of excellence that they did not. Readmissions within 30 days were 70% less at the centers.

Weight-loss surgery. In tracking patients for nine months after their procedures, said Woods, Walmart found that using the centers resulted in a 70% reduction in drug costs.

Cancer. Roughly one third of Walmart associates diagnosed with cancer go to a center of excellence—in this case, Mayo Clinic—for care, she reported. Of those, 55% received a “new or adjusted” treatment plan there—and 10% a new diagnosis entirely. “We have associates that have been told that they have cancer and when they get to Mayo Clinic, they learned they don’t have cancer,” Woods said. “We [also] have associates where cancer has spread, and they were not aware of it.”

She passed the mic back to Osborne. “Let me announce this as clearly and as loudly as I can: I won’t stand for this,” he said. “Lisa isn’t going to stand for this. Walmart isn’t going to stand for this.”

Woods stressed that a company need not be a giant like Walmart to benefit from direct contracting for procedures. “It doesn’t matter whether you have 500 employees, 5,000, 50,000 or a million like our plan,” she said. “This is a program that all employers can implement.”

Direct ACO contracts, by contrast, might be something that only large, sophisticated employers can handle. But the strategy is gathering momentum among America’s mega-employers, and Walmart has contracted with eight health systems since 2016.

“Americans need us to act now,” Osborne said in his closing. “Walmart is acting. Here’s the good news. We’ve got lots of room on the bus, so join us.”

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