BENCHMARKING: Seriously, WTH??

Raise your hand if you’ve ever witnessed, or been a participant in the following life event, or something similar:

“Johnny, why did you rip holes in that brand new pair of jeans? “

“Well dad, that’s how everyone else is wearing them….they did it first….”

“Son, if everyone was jumping off a cliff, would you follow them?”

Ya, whether it’s jeans or something else, we’ve all been there, right? 

The same feelings are stirred when I hear some employers speak about BENCHMARKING and their health insurance plans!  Well, THAT CITY has the same level deductible as we do, and we pay about the same as they do.  Or, we’re doing just about as good as we did last year, when their medical spend PEPY the year prior was $14,000….smh…It’s like pro football teams saying, “Well, look at the Dallas Cowboys, we did just as good as they did last year!”  Can you imagine if a head coach came out and said that?  Lol…Wanna know why a head coach would never come out and say that last year’s 8-8 record was “as good as” some other team who went 8-8 and missed the playoffs?  Because we all know 8-8 is just……meh….8-8 ISN’T THE BENCHMARK FOLKS, it’s barely average!  What happens to coaches who go 8-8 for too long?  Ask Jason Garrett.

If you follow this blog, you know I’m on this public sector kick right now, and I think it’s because public entities publish so much data and information online that is readily accessible and it’s easier to extrapolate what they’re doing.  Also, it’s tax-payer money and I get a little perturbed to see it wasted this way. 

Not sure how many points I’ll make in this post, but here’s POINT #1:  Spending on average $12,000 per employee per year on healthcare/benefits may be the national average, but it damn sure isn’t the benchmark you should be aiming for.  That’s the equivalent of the head coach analogy.  It’s the 8-8 analogy.  Stop comparing yourselves to other health plans that average $12,000 of medical spend per employee per year.  You can brag when you are sitting sub $8000 PEPY.

Ashamedly, I watched an entire recorded 2 hour City Council meeting of a town near here this week, and when the HR person gave the health insurance fund report to the Mayor and Council, the person speaking referenced their “benchmark with other select cities” 46 times in a 10 minute report.  I went back and counted, true story.

A “benchmark” is an established standard of excellence!  Not mediocrity.  Peer to peer benchmarking in healthcare is a poor standard.

Here are a few “benchmarks” for self-funded plans that will help, and remember, data without action is dead.  It’s meaningless.  Data should lead to ACTION!!!!

Benchmarks:

• Medical Spend per employee per year (PEPY):  Take the gross spend on medical claims in a year (minus pharmacy), and divide it by the total number of EMPLOYEES (not total covered lives).  The national average is just over $12,000 PEPY.  BUT REMEMBER…..that’s an average.  Stop benchmarking against an average and aim for the gold standard.  Aim for a PEPY south of $8000, that’s where the well-managed plans are running.

• Pharmacy Spend per member per month (PMPM):  This is a benchmark across all covered lives on the plan.  Take the gross spend on pharmacy claims in a year, and divide it by the total number of covered lives on the plan, then divide that number by 12 to get the pharmacy spend PMPM.  The national average is $92 Per Member Per Month on pharmacy spend.  I’m consulting for an employer right now that their Pharmacy spend PMPM is $117, and just getting down to the national average will yield this employer over $1M in annual savings, just by touching the pharmacy piece alone.

• Hospital Inpatient Admissions per Thousand covered lives:  What is your hospital admission rate per thousand?  Calculate the number of admits per 1,000 visits by taking the number of admits over a given time, multiplying it by 1,000, and then dividing it by the total number of people who visited the facility during that identical duration of time.  This benchmark can tell you a lot about medical management strategies, employee engagement levels, and where you need to focus.

• Average length of stay for hospital admissions:  Compare benchmarks for Inpatient Goal Length of Stay (GLOS) attainment for over many conditions and procedures, as well as hospital readmission, emergency department, and observation level of care utilization and rates

These are a few benchmarks that plans should consider.  But understand your benchmarks so that you are not comparing apples to oranges.  Good medical management vendors can help you tremendously in setting goals and benchmarks.  Stop comparing your plans to “average” performers….it’s like bragging that you did as well as the Cowboys last season.  They went 8-8 and missed the playoffs…..hardly a “benchmark” to compare your team to.