How a health care 'hedge fund' run by ex-congressman plans to cut costs

Anjalee Khemlani
Senior Reporter
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When former New Jersey Congressman Rob Andrews was picked to head the Healthcare Transformation Alliance in 2015, 15 companies were on board to support the organization’s effort to reduce employer-sponsored health care costs.

Four years later, the co-op has grown to 51 large companies with more than 7 million employees worldwide. The alliance’s constituent companies range from those with 6,000 employees, to those with more than 500,000 employees.

In the past four years, the HTA says it has saved its members at least $400 million in overall health care spending — with only 11 full-time employees and a team of consultants.

“We compare ourselves to a hedge fund,” Andrews — who resigned his seat in 2014— told Yahoo Finance in a recent interview.

“We are a lean, agile organization that deals with very sophisticated and informed investors, in their case, in our case, owners,” the former Democratic representative said, calling the organization a “watchdog” for health-care related agreements.

The Alliance is leveraging its size and data insights to help its members save money through three key areas: Data analysis, specialty drug price negotiation, and creating a digital health marketplace. The latter helps employers choose the best and most effective digital health tool or vendor.

The company has been collecting data on the millions of employees covered, and used IBM’s Watson to analyze the data. IBM (IBM) is also one of the companies in the Alliance.

“We have a data platform that shows us quite specifically the variations of cost and quality of care across the markets and across the country,” Andrews said.

“We now the realtime ability to evaluate the quality and cost of providers and (are able) to educate members on where they can get the best outcomes.”

But that is just one step.

“What you do with that reality is challenging,” Andrews said.

Simply having the data doesn’t mean employers or employees will follow the recommendations, but it could inform future health plan designs.

Reining in drug costs

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Since its founding, the HTA has been chasing one of the biggest health care cost drivers the entire country has been focused on— reducing drug costs.

In that regard, the Alliance has had success by negotiating directly with pharmacy benefits managers Optum, owned by UnitedHealth Group (UNH), and CVS (CVS).

In 2018, the company saved a median of 15 percent for its members, compared to 2017 spend, for members through their contracts with the Pharmacy Benefit Managers (PBMs).

Now, the HTA is focused on specialty drug costs, which are among the highest costs for employers. The organization is figuring out how to negotiate a better price for them, and is targeting 2021 for rolling out a plan for doing so.

“We are emphasizing the actual acquisition cost as a measure...compared to the discounts and rebates,” Andrews said.

The pricing system of drugs is very complicated, HTA has streamlined its negotiation process.

Rather than try to figure out which lever to push and how to adjust each part of the pricing system—which is where policy-making has been focused—the alliance seeks out a direct relationship with manufacturers.

“Rather than figure out how it’s agreed upon, we are interested in changing it to our benefit,” Andrews said.

“If we found out that the middlemen had acquired a drug for $50,000 and we are paying $70,000, well what are we getting for that $20,000?” he asked. “If we find it’s not adding value, we will get someone who will charge less and do more for it.”

The policy question of why drugs are priced the way they are is an important one, but that’s not the one we are asking.”

A ‘virtual Sam’s Club’

Another improvement the HTA has been able to offer the employers is a partnership with Welltok, a Denver-based startup which provides insight into the ever-growing landscape of digital health tools and vendors.

Starting this year, Welltok is helping HTA members avoid the constant bombardment of pitches from the digital health world, Andrews said.

Via Welltok, HTA members can see which ideas have the best results. In exchange for this insight, Welltok charges a fee.

“We now have the capability of testing (the innovator’s) claims and ID innovators who are effective,” he said. “Think of it as a virtual Sam’s Club, where someone can go buy what they want to buy.”

The goal of many of these platforms is to help reduce costs and improve outcomes.

For example, if an employer wants to help manage Type II diabetes care in their employee population better, they can search through a database of options and see which have had the best results based on past users and their experiences.

There are currently 300,000 covered lives using the tool, and Andrews anticipates 500,000 by the end of the year.