Will Wal-Mart's health cost crisis hit doctors?

Wal-Mart Stores Inc. has a problem. It's under withering attack from critics for having thousands of its employees and their families on Medicaid rolls or otherwise unable to afford health insurance on what they earn. Wal-Mart would like to buff its reputation, but it doesn't want to do so by being so generous that its health costs rise even faster.

Answers to Wal-Mart's problem lie in a 27-page company memorandum released Oct. 27, the day after an earlier version was leaked to the New York Times and Wal-Mart Watch, a Web site critical of the company. The memo, written by Susan Chambers, Wal-Mart's vice president of benefits, is one of the bluntest assessments of corporate health benefits ever released. It is a study of how one large, influential corporation wants to effect change among employees and their interaction with the health care system.

Physicians aren't front-and-center in the memo, but experts say they surely will feel the effects of what Wal-Mart wants to do.

Wal-Mart's actions "have a societal impact that goes significantly beyond what would happen if it was a smaller company," said David E. Williams, a principal at MedPharma Partners LLC, a health care consulting firm in Boston. "Whatever their costs are, other competitors are going to have to try to match them. So, if Wal-Mart is very stingy on benefits, it does encourage others to be stingy as well."

Wal-Mart, which would not comment for this story, makes no bones about trying to find ways to hire and promote a healthier work force, such as making physical activity a part of every job. For example, clerks also have to clear carts from the parking lot. Offering education benefits is another way to appeal to a younger, healthier work force. Such open assessments have some lawyers saying Wal-Mart is setting itself up for discrimination lawsuits.

Chambers' memo warns that the company's benefit costs, including health, retirement, vacation and other programs, are rising 15% a year, faster than the company's sales. At this rate, Wal-Mart, the nation's largest retailer, would spend up to $35 billion on benefits in 2011, according to the memo. As of 2005, Wal-Mart spent $1.5 billion a year on health care, with an annual growth rate of 19%.

Much of the memo aims at how to change employee behavior. Chambers particularly laments that Wal-Mart's work force is aging, more likely to experience obesity-related diseases, and is generally unsophisticated about negotiating the health care system.

"A segment of our work force consumes health care inefficiently, in a pattern similar to a Medicaid population," Chambers writes. "Our population tends to overutilize emergency room and hospital services and underutilize prescriptions and doctor visits. This pattern is most evident among our low-income associates, and one hypothesis is that this behavior may result from prior experience with Medicaid programs."

The memo says 5% of employees are on Medicaid, compared with a 4% rate for retailers in general. The memo acknowledges that one of Wal-Mart's image problems is that some of its employees are on Medicaid.

The memo contains some strategies to combat Wal-Mart's rising health costs that many physician organizations have supported. These include the widespread use of low-premium, high-deductible insurance paired with health savings accounts as a means to expand offerings, yet have patients be more responsible for spending. The AMA has supported HSAs as a means to reduce the number of uninsured Americans.

If Wal-Mart were to adopt HSAs, that could accelerate their use among all corporations, forcing physicians to make some changes in how they operate, said Nan Andrews Amish, founder of Big Picture Healthcare, a El Granada, Calif., company that provides strategic and marketing consulting services to health care organizations. "When the individual is much more concerned about their health expenditure, they are going to push back much more against doctors who don't talk to them about what they are buying," Amish said.

Quality incentives

The memo also contains some strategies that have met physician resistance. For example, it outlines working with health plans to create "high-quality" physician networks. Employees would get financial incentives to see the "high-quality" doctors.

While tiered networks based on cost and quality aren't new, they've gotten mixed reviews from doctors, particularly when it appears that having low costs is the indication of quality. For example, in the St. Louis area, the AMA, the Missouri State Medical Assn. and local medical societies balked at a quality-pay plan by United Healthcare, formulated on behalf of large corporate payers such as General Motors and UPS.

United is revising the plan, with physicians' assistance, after physicians and hospitals threatened to pull out of United because of the plan's reliance on cost as a determining factor of quality, thus effectively steering patients away from them.

In-store clinics

Also, the Wal-Mart memo outlines using store-based clinics as a less-expensive way to provide employee care. That puts a new twist on Wal-Mart's recent introduction of the clinics, which are not owned by the company, into a few of its stores. Other retailers have opened such clinics as a way to expand their offerings, but Wal-Mart is the first to state it might want its workers to use them.

The clinics generally are staffed by a nurse practitioner or physician assistant, with a physician on call if necessary. The clinics promote themselves as treating nonurgent medical problems for less than what doctors charge, which could put financial pressure on primary care physicians, Williams said.

The opening of clinics is already "happening anyway, but Wal-Mart is so ubiquitous that it could make it happen a lot faster, and since they tend to be the cost leaders, it would also drive prices down a lot."