Amazon Isn't the Only Retail Giant Trying to Remake Health Care

Amazon.com Inc. says it wants to remake health care for its workers. But its biggest rival is beating it to the punch.

Walmart Inc., the largest private employer in the U.S., has been buying health care for its workers directly from providers in six different regions — bypassing insurers who usually negotiate with doctors and hospitals. The retailer is trying to find out if its formidable purchasing power can squeeze out middlemen and drive down costs in the same way that its tough bargaining has brought down prices for shoppers.

“We wanted to see what was more effective — what works, and what doesn’t work,” said Lisa Woods, the company’s senior director of U.S. health care. “If we can’t impact and influence cost or how cost trends are increasing, then we need to change or do something different.”

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Companies are the largest providers of health insurance in the U.S., giving more than 150 million people access to coverage. While premiums have soared 55% over the past decade, according to the Kaiser Family Foundation, most firms have done little tinkering with their health plans beyond asking employees to pay higher contributions and out-of-pocket costs.

But as political pressure over rising costs continues to build, most recently with Food and Drug Administration Commissioner Scott Gottlieb this week calling out drug plans over a “rigged payment scheme,” some employers are weighing more radical changes.

Amazon in January said that it, JPMorgan Chase & Co. and Berkshire Hathaway Inc. would set up a new business to improve their employees’ health care. Berkshire Chairman Warren Buffett called high health costs a “tapeworm” afflicting the U.S. economy.

Other companies are grappling with the issue with less fanfare. Like Walmart, private-equity giant Blackstone Group LP and postage-meter maker Pitney Bowes Inc. are trying new ways of getting better care at lower cost.

Walmart has been testing its new plans, known as accountable-care organizations, or ACOs, for two years. ACOs, which can be set up by employers on their own or with an insurer’s help, limit consumers to a smaller group of care providers.

ACOs also include financial incentives for doctors and hospitals. For example, health providers may receive extra money for making sure workers get treatment for chronic conditions, such as diabetes or heart disease, or cancer screenings.

Employers often balk at making big changes for fear of upsetting workers, especially in a tight labor market, said Suzanne Delbanco, executive director of Catalyst for Payment Reform, a group of companies including Walmart that are pushing insurers and providers to do a better job of caring for workers. But high health costs are squeezing workers and firms alike.

“Employers are aware that Americans are increasingly willing to make tradeoffs between choice and affordability,” she said. “It’s a different era.”

Walmart says its ACOs have seen lower hospital admissions and emergency-room visits, while trips to primary-care doctors have risen. It’s too early to say whether Walmart is saving money, said Woods, the health executive, though premiums tend to be lower for workers who choose the plans.

Catching On

ACOs are catching on with other companies. About 21% of large employers are using them, though most are using ACOs set up by insurers, according to a National Business Group on Health survey.