An Rx for Costs

Can companies get a grip on rising health-care costs? General Motors spent $4.5 billion on care for its 1.2 million U.S. employees and retirees last year. That's more than the car giant made in profits. DaimlerChrysler pays out about $1,300 in employee health benefits for the typical vehicle it makes. Across the U.S., 2004 is likely to be the fifth consecutive year of double-digit increases in total corporate health-care costs.

Not surprisingly, many companies are trying to dump more of the cost of health care on employees. But VitalSpring Technologies Inc. offers a different approach: paying greater attention to get-well strategies for workers, particularly those most likely to get seriously sick. VitalSpring, based in Mclean, Va., was founded in 1999 by Sreedhar Potarazu--an ophthalmologist, M.B.A. and former faculty member at Johns Hopkins University Hospital--with the idea of helping companies control costs by being more proactive in employee health care.

Hiring outsiders to help cut health-care costs isn't new. But the job normally goes to consulting and insurance firms, whose interests are not always aligned with those of their clients. VitalSpring claims that as an independent body it can focus solely on how a company can improve its purchasing power. The ultimate goal: to help a firm analyze costs for itself so it doesn't have to rely on outsiders.

To do this, VitalSpring outfits a company with Internet-based software that constantly gathers and updates health-care data. The programs scrutinize medical costs, of course, but also study employee demographics and health patterns. The objective: an end to one-size-fits-all insurance coverage. Instead, the analysis is designed to help determine which employees run the highest risks, so the cost of those risks can be contained. Studies have shown, for example, that about 8% of enrollees account for 70% of the costs. These high-cost employees tend to have heart disease, diabetes or other chronic illnesses. One VitalSpring strategy involves increasing coverage for these individuals while reducing blanket coverage for lower-risk employees. If this is handled properly, a company could save 3% to 5% annually. In General Motors' case, 5% would be $225 million.

McDonald's Corp. is trying to cut health-care costs for the 13,000 employees it insures. VitalSpring created a database of McDonald's employees, ranking them 0 to 5 on the basis of their health problems, weighting underlying conditions and complications in a formula that calculates future health-care costs. The company's goal is to spot illness early and try to prevent the employee from getting sicker. The strategy involves "disease management," which provides employees with advice on diet and exercise and offers more intensive medical surveillance to arrest disease.

"You might have an asthmatic worker who is only consulting a general practitioner," says Robert Wittcoff, McDonald's benefits director. "We would probably like that person to see a pulmonary specialist and deal with the problem more comprehensively before it gets worse."