"Merrill Lynch Cuts Health Costs,
Creates a Generous Benefit Plan"
by Carol Gentry
May 23, 2000, The Wall Street Journal
"There are health plans, and there are health plans. And then, there is Merrill Lynch & Co.'s health plan.
By just about any standard, the financial-services giant is generous in what it covers. For example, it sets no limits on how long its employees can get care in a mental hospital -- an approach virtually unheard of elsewhere.
The company regularly retools its coverage to accommodate special needs. For a secretary rendered mute by Lou Gehrig's disease, it approved a synthetic speech machine that costs $6,000.
Early Detection
Even when Merrill Lynch turns down a request, it can do so in an unusually forgiving way. A disabled former employee suffering from multiple sclerosis asked Merrill to cover construction of a large swimming pool, so he could get exercise therapy. Can't do that, Merrill said, though we will cover a pool 4 feet by 6 feet.
But here's the really odd part: The company says its approach appears to be saving money. Adjusted for inflation, its health costs have declined even while benefits have expanded. And Merrill spends less per employee than many similarly sized companies. In fact, a half-dozen other corporations have copied its health plan, and the government will run a pilot project of it for thousands of federal workers this summer.
The story of how the nation's largest investment firm built its own benefits program rather than use an off-the-shelf plan challenges many of the assumptions that led employers into managed care. Instead of controlling costs by restricting employees' access to specialists or brand-name drugs, Merrill says it saved money by focusing on the quality of care and early detection.
The Company's Role
The company's experience also illustrates a fact that gets lost in the managed-care debate: If you work at a big company, it's probably your boss, not your HMO, who calls the shots. While small employers usually have to buy a standard health plan with preset limitations, large companies can act as their own insurer. They can make decisions about coverage and hire an insurer to act as the middleman and pay the claims.
Many corporations are content to delegate authority over the scope of coverage to insurance administrators, says Kenneth J. Reifert, director of global benefits for Merrill Lynch. 'They want to distance themselves from a tough decision.'
Merrill Lynch's different route dates back to 1987, when William Schreyer, chief executive at the time, underwent open-heart surgery. Shortly thereafter, he brought in a young cardiologist, Lonny Reisman, to screen Merrill executives for heart problems.
Soon after Dr. Reisman arrived, he met with Herbert Allison Jr., who was then Merrill's head of human resources and later became its president. Mr. Allison asked Dr. Reisman his opinion of the company's cost-containment strategy. 'I think it stinks,' Dr. Reisman says he told him. 'You're completely missing the point. It isn't about resource consumption, it's about clinical excellence.' He suggested that if Merrill focused on improving quality of care, the company could solve its cost problems.
Mr. Allison introduced him to the then-director of health benefits, Mr. Reifert, and the two visited insurance contractors nationwide, conducting random audits of staffers' medical care. Records showed employees with untreated sky-high blood pressure or out-of-control glucose levels. Some Merrill employees had spent days in the hospital being treated for the wrong disease. Ominous results on screening tests weren't always followed up.
'A Blank Check'
Meanwhile, insurers' prices were soaring. 'We were giving them a blank check,' Mr. Reifert says.
He and Dr. Reisman tried to recruit HMOs as partners for a quality-improvement project. But they couldn't get the HMOs' attention.
So Merrill formed a coalition with other major employers to lobby health plans to put more emphasis on monitoring quality. The bird dogs for the group were Dr. Reisman, who by now was a full-time consultant to Merrill employed by the William M. Mercer consulting company, and his colleague at Mercer, Charles Blanksteen.
The two started a company to serve as an incubator for the quality-improvement project. With encouragement and money from Merrill and venture capitalists, the firm evolved to become the closely held Active Health Management Inc.
They began by examining the treatment given to Merrill employees and dependents who had generated more than $50,000 in claims in a year. They checked on whether those patients had been properly diagnosed, were being given the best possible treatment (whatever the cost) and were being monitored properly.
When the answer was no, the patient's doctor would get a call from a Merrill medical consultant with a few tactful suggestions. Then, Dr. Reisman would check on the patient from time to time.
But Active Health and Merrill Lynch managers concluded they needed to intervene much sooner -- not after a heart attack, but when a patient with angina went untreated; not after a stroke, but when a patient failed to fill a prescription for blood-pressure medicine. What they needed was computer software to alert them to danger signals, so they could alert the patient's physician. Active Health developed a program that could take in data from throughout the system -- doctors, laboratories, hospitals and pharmacies -- and flag mistakes, misdiagnoses and disasters waiting to happen.
Next, Merrill needed a national insurer to handle payment of bills and follow up on hazards the computer flagged. The big insurers declined, but there was another possibility: String together Blue Cross and Blue Shield networks across the country, under the leadership of Empire Blue Cross and Blue Shield of New York. Michael Stocker, Empire's CEO, was enthusiastic.
Merrill Lynch officials decided that while Empire would handle bill payment, they would determine what the coverage should be. The company said it would abide by the principle of following the advice of the best medical experts.
That strategy sometimes puts the company in a lonely position. Most insurers, for example, don't cover behavioral therapy for children with autism, saying it's the province of education, not health care. Merrill Lynch covers the treatment in some early cases where experts say such therapy can bring lasting improvement.
Merrill Lynch doesn't coerce patients into taking a generic drug if the doctor wants them to have a brand name. 'We want patients to get what the doctor is prescribing,' says Shari Goldfarb, a vice president for global benefits.
When Viagra came out, the company that manages Merrill's prescription-drug program called Mr. Reifert's staff to say that a lot of companies weren't covering the anti-impotence drug. After checking with Active Health, Merrill gave the go-ahead. 'Impotence is a medical condition,' says Louis DiMaria, vice president and manager of international benefits planning. "So we're covering it. Simple."
Merrill Lynch's plan sets no arbitrary limits on the number of home-health visits or the number of days for inpatient hospital care for mental health, substance abuse or rehabilitation. Coverage remains at 100% as long as doctors consider the treatment medically necessary and the patient is improving.
Most insurers set caps on those services because they have been overused by hospitals and because the treatment for such problems wasn't clear-cut. But Mr. Reifert says it's now clear that psychiatric problems can stem from biochemical irregularities. So why would the company cover them differently than physical ailments?
It doesn't make sense to kick patients out of the hospital when they're making progress, adds John Brence, a vice president for global benefits. The same logic governs home visits, he says. If there are set limits, "sooner or later, somebody's going to need care beyond that," he says. "And if they don't get that care, they're going to get sicker and end up going back to the hospital."
Merrill Lynch insists it knows where to draw the line. When some New York employees asked for acupuncture coverage, the staff and its Active Health physicians said OK -- but only if it's done by an acupuncturist with traditional medical training.
When a request came in for a new type of mammogram that was still being tested, Active Health suggested Merrill say no. There were still too many problems to trust its reliability, they said.
Employees who aren't satisfied with answers from benefits managers can appeal to a panel from Merrill's human-resources staff. But employees say Merrill goes to extraordinary lengths on their behalf.
Once, Merrill sent a Learjet, staffed with a surgeon, from Germany to Kenya to pick up a manager's desperately ill wife stricken while on vacation with a blood clot on the brain. Mr. Reifert blanched at the price -- almost $100,000 -- but paid it at the recommendation of Merrill Lynch's medical director, Donald Gemson, who decided that Kenya and neighboring countries lacked the imaging equipment and experienced surgeons required to the treat the problem. The patient recovered.
Employees have heartily endorsed Merrill's health plan and its quality-monitoring system, tested in 1998 and fully implemented in January 1999. In the mid-1990s, many of them had gone to managed-care plans to get away from deductibles, paperwork and coverage of only 80% of the bill. But when they heard that the new Merrill plan had none of those features, and still covered three out of four doctors and nine out of 10 hospitals, they jumped back in. Now 80% of the company's employees are on the new plan.
Insurance industry groups say that HMOs and other insurers have already used technology to develop quality-monitoring systems, and private employers don't need their own system. "This isn't anything new," said Charles N. Kahn III, president of Health Insurance Association of America.
But Active Health says the Merrill system is far ahead of the usual insurance company efforts because it focuses only on quality, not on cost, and because it has such a huge database. Thus, Active Health was warning doctors about drug interactions and other risks with the heartburn drug Propulsid more than a year before the manufacturer acknowledged them and pulled it off the market in March.
In some ways, Merrill's generous coverage is an extension of similar policies that go back decades. The company opened its first on-site health clinic more than 50 years ago, and it now has clinics at 10 Merrill locations, designed to save workers time and increase the chance that problems will be detected early.
Karen Scales, who works in Merrill's New York headquarters, saves about four hours a month by getting her allergy shots downstairs. But she values the clinic for more than convenience: Her first skin cancer was spotted there, and she was referred to Memorial Sloan-Kettering Cancer Center, which has now removed three. Ms. Scales says she "never, ever would have gone" for screening if it hadn't been so convenient.
While the clinics rang up 80,000 visits last year, they account for less than 2% of Merrill's $130 million a year in medical spending. The lion's share goes into the health-insurance system.
So what evidence is there that Merrill's approach saves money? The company's medical cost per employee last year, including workers' own contributions, was roughly $3,600 -- about 25% less than the average found in a benchmarking study of 54 large employers by the Towers Perrin consulting company last summer.
Merrill Lynch has fewer retirees to cover than many large corporations, such as auto makers, Mr. Reifert says, so it's possible there are other factors at work. But he also notes figures that show Merrill Lynch's health insurance costs per capita dropped slightly between 1995 and 1999, when adjusted for medical inflation during that period.
The company also has found that the rate of large claims (more than $50,000) has been steadily declining. There were 2.2 claims per 1,000 people covered in 1999, vs. 3.3 per 1,000 in 1995. Meanwhile, the average for a high-cost claim remained stable at around $100,000.
Mr. Brence calculates that the reduction in high-cost cases saved Merrill $6.5 million in direct medical costs over the five-year period-not to mention the reduction in suffering and time lost for employees.
After seeing Merrill's experience, other companies have signed up for the Active Health/Empire system, including Marriott International Inc., Sears, Roebuck & Co. and Circuit City Stores Inc.
The plan puts 'dollars in the right place,' says Gary Krueger, manager of group benefits for Circuit City, 'as opposed to buying something that's just managing access to care.'
The quality-monitoring system also caught the federal government's interest. This summer, the government will begin a pilot project, to last at least a year, using the system for 40,000 federal employees in New York and an undetermined number of other workers elsewhere in the country."