There’s a showdown underway between the state of North Carolina, the state’s largest insurer, and the health systems in the state. The NC State Treasurer, Dale Folwell, is responsible for covering health costs for 727,000 state workers, a $3.3 billion annual spend. He’s not happy about the increasing cost of healthcare and what it’s costing the state.

In an opinion piece earlier this year, Folwell says he plans to reign in unsustainable healthcare costs in two ways. First, he wants to align the state’s reimbursement rates to a percent of federal Medicare rates. Second, he’s demanding price transparency by mandating that all hospitals publish their prices. The North Carolina Hospital Association (NCHA) is firing back. They say drastic cuts in current reimbursement rates would cost health systems hundreds of millions of dollars. Medicare baseline rates, they argue, are almost always lower than their total cost of care, which includes a substantial amount of cost the systems need to cover for uncompensated care.

The standoff between the State as an insurer and the NCHA as the provider network illustrates yet another attempt to solve healthcare’s problem at the wrong end. Folwell is reacting to increased prices that result after those costs have occurred. Simply denying or curbing payments doesn’t help health systems, argues the NCHA. Those costs would have already incurred cost and the systems would have an even larger bucket of uncompensated care.

This downstream cost-cutting approach continues to create a confrontational environment between payers and health providers. Clearly, a new approach is needed. Shifting the focus to the upstream problem might just be the angle that helps turn these antagonists into collaborative partners.

The upstream problem driving downstream costs

A 2014 Rand Corporation study that noted that 60% of Americans have at least one chronic condition and close to half (42%) have multiple chronic conditions. The CDC says 90% of the $3.3 trillion in health care spending to people with “chronic and mental health conditions.” What’s more, 80% of people drop out of their chronic condition management programs, resulting in more frequent visits to the doctor, the emergency department and increased hospital admissions. Most clinical research on poor condition management cites behavioral and lifestyle determinants to a patient’s overall ability to comply with managing their condition. But there’s another reason, equally as valid.

“I know it when I see it”

In a 1964 Supreme Court case, Justice Potter Steward defined obscenity by famously writing, “I know it when I see it, and the motion picture involved in this case is not that.” A similar issue is happening with consumers and their reaction to health care innovations. A recent Oliver Wyman survey indicates that while consumers are looking for a better health care experience, most forms of healthcare delivery are not meeting their needs. They conclude: “There is indeed a hunger for a new healthcare experience, but what consumers want is not what most companies in healthcare are offering. This suggests if consumers are not yet buying, it’s because industry offerings are not yet compelling enough to overcome consumer resistance.”

Downstream costs are being driven largely by an alarming number of consumers who not only have chronic conditions, they don’t comply with their treatment programs. And consumers, who are looking for solutions, haven’t found anything that is appealing enough for them to adopt. So, how could cutting costs alone help?

Shifting upstream to a consumer-first approach

It is Wellsmith’s belief that the health management experience must rotate around the consumer, not around the insurer or the provider. Not only can this approach help mitigate downstream costs, but it can also be the model for moving further and further upstream and helping consumers manage their health before it becomes an issue.

For example, we are working with one health system to enroll consumers in a collaborative digital program with their providers and a Care Team, to create the best care management environment for these consumers to manage type 2 diabetes. The provider is supplying the necessary care and guidance to the patients. The patients are enabled via technology designed by Wellsmith to independently manage their health. So far, the data has been eye-opening from an engagement standpoint. Rather than an 80% drop out rate, participants using the Wellsmith platform have close to an 80% retention rate after a year on the platform.

The Wellsmith platform makes one vital, though subtle, change in approach. Rather than designing experiences “for” a patient or “for” the health system, we are designing care management experience “with” the patient and “with” the health system. Not only does this approach improve the provider’s ability to more confidently and efficiently manage chronic populations (thereby driving down costs), it simultaneously improves the consumers’ ability to more confidently and independently manage their own conditions.

Rather than a showdown, it’s time to realize that in order for insurers and health systems to successfully manage costs downstream, they must first focus on improving the health of consumers upstream. With Wellsmith, that’s achievable.