JEA Q. 2 2019
Where Do We Go From Here? Improving Value and Pricing in EAP
By David A. Sharar, PhD
One of the key expectations of purchasers and providers of EA services is that those services will be high quality in design and implementation, comprehensive in delivery, and performed at a reasonable cost. Moreover, purchasers and providers expect that these services will be easily accessed by the user, and there are both stated and implied benefits for all parties involved.
Most of the field has been working without common definitions of what constitutes quality, comprehensive services, easy accessibility, or reasonable cost.
The missing link that can promote our field lies in measuring the outcomes of EA services. We concretely need to demonstrate the results of our efforts. If results are not measured, they are merely impressions or opinions.
If impressions or opinions are the basis for EA business, then we subject ourselves to the whims of the marketplace, and the latest cost pressures from benefits consultants. We cede control of the EA narrative to others when we fail to measure our own effectiveness.
We have a fundamental challenge in the EA business: pricing for EA service delivery is low (for many reasons); yet we have a tough sell because we don’t establish the value of our services in ways that are tangible. The value of EA services (and our future) is absolutely linked to the ability to measure the outcomes of our activity.
The following article by longtime EA colleague David A. Sharar, PhD, is simultaneously infuriating (how did we get to this point?) and invigorating (there is a path forward). Let’s collectively read, absorb, react, discuss, and do what we do so well in the EA profession: intervene, assess, and move to resolve problems. In this case –our own.
Gregory P. DeLapp, MHS, CEAP
CEO – EAPA
Why are many EAP practitioners reluctant to change when change is crucial to the survival of our profession? But my intent in writing this article is not to be negative or overly critical, but rather to realistically and truthfully confront the current state of the employee assistance profession. Rather than just addressing our problems, I will also propose solutions later in this article.
Per-employee-per-month (PEPM) rates for Employee Assistance and Work-Life have significantly decreased over the past three decades. The once standard internal EAP – where EA staff are full or part-time employees of the employer sponsoring the EAP service – has largely been replaced by external programs or outsourced vendors (Frey, Pompe, Sharar, Imboden, and Bloom, 2018). Many longstanding internal programs have been downsized or eliminated in favor of cheaper external providers.
The continued push for vendor consolidation (acquisitions & mergers) has moved the field towards “product parity”. In other words, external EA vendors tend to look similar in terms of program features and services.
This makes it difficult for EA service providers to differentiate their services from the features and offerings of competitors. Price increases are generally viewed by EA vendors as significant threats to contract retention and by employer customers as expenses to be suppressed or avoided.
Marginal service providers typically receive about the same rate as “optimal” ones due to the “invisible” nature of the way EAP cases are handled and managed. Service quality is highly variable and some EAP clients receive optimal care but many do not.
We lack common definitions and agreed upon markers of success so that buyers can accurately compare vendors and program models using the same “yardstick”. As a field, our approach to metrics and measurement tends to be blunt, simplistic, and even at times exaggerated or distorted.
Many employers don’t know a good performance measure from a bad one. Unlike the early days of EAP, there now seems to be a high degree of apathy and lack of senior management engagement in selecting and supporting EA vendors.
Decision-making around EA purchases, particularly for large employers, has migrated to purchasing departments and benefit consultants who frequently consider buying decisions from the myopic perspective of low cost. Trying to penetrate a different center of buying influence in today’s workplace benefits labyrinth is filled with constraints.
Buyers of workplace services are generally incentivized to drive down price and reduce higher level value propositions to the lowest common denominator. There is even a clear trend for certain insurance and disability carriers to bundle EAP into their core insurance products and offer it for “free” (Sharar and Burke, 2009).
Of course the so-called “free” EAP is not really free, but the buried low price of the program allows the insurer to easily absorb the EAP expense into their overall plan fees. Put another way, the EAP is sold at or below cost to attract attention to a higher margin product. This overall state of affairs in EA has hobbled true innovation and allowed pseudo-innovation and marginal quality, with no meaningful way to neither measure and compare value, nor thrive in EA work.
Sadly – in spite of this state of affairs – some EA providers eke out a profit by insidiously implementing a kind of “managed care” type of EAP. How as a field do we compete on who is actually best at resolving employee (client) personal and work problems rather than on marketing pizzazz, under-utilized features, and the albatross of the field – the lowest possible price?
Sad State of Pricing
A proprietary, fee-based procurement website that summarizes benchmark pricing for purchasing agents revealed that the PEPM fee for comprehensive EAP services in 2018 was $1.08. A phone-only model showed a $0.60 PEPM; a three-session model, 0.77, and a six -session model was paying $1.71 PEPM. An employer with 2,000 + employees was paying around $0.96 PEPM – a smaller employer with roughly employees around $1.58 PEPM.
Adding on “work-life” referral and resource services increases the PEPM by only about $0.08. During the 1990s that same three-session model averaged $1.58 PEPM or $19.00 per-employee-per-year (PEPY) while a six-session model averaged $2.08 PEPM or about $25.00 PEPY (Sharar and Hertenstein, 2006).
Per-employee-per-month rates: 1990s compared to 2018
Model 1990s 2018
1 – 3 sessions $1.58 PEPM $0.77 PEPM
1 – 6 sessions $2.08 PEPM $1.71 PEPM
Benchmark $1.83 PEPM $1.08 PEPM
Consider the low-cost nature of EAP pricing by comparing outpatient mental health counseling or psychotherapy services with a typical employer-sponsored health plan to an EAP. When psychiatry (medical) and pharmacy are excluded and average, proportionate administrative loads (for outpatient mental health only) are factored in, what remains in the health plan is outpatient counseling or psychotherapy with a licensed “helping” professional (e.g. psychologist, social worker, counselor, or family therapist).
After deducting typical employee co-payments, a converted PEPM rate for the outpatient mental health portion of a health plan is $11.00 or a PEPY of $132.00 (S. Melek, personal communication, January 25, 2017). In contrast, the current benchmark price for an EAP is $1.08 PEPM or about $13.00 PEPY.
Per-employee-per-year conversion: Outpatient mental health compared to EAP
The average number of counseling sessions per case in the employer-sponsored health plan is about 8
The average number of counseling sessions per case in a typical employer-sponsored health plan is about 8, with a utilization rate of 7.6% for a typical employer (S. Melek, personal communication, January 25, 2017). The average number of counseling sessions per case in EAP is 2.47 with a utilization rate of 4.5% (Granberry et al, 2013).
It is not empirically known what percent of cases overlap or use both EAP and outpatient mental health in the employer’s health plan. Keep in mind the global prevalence of common mental health issues in a workforce is 17.6% (12-month estimate).
With an average EAP utilization rate of 4.5%, consider that a portion of that 4.5 % is “sub-clinical”, meaning the employee has emerging symptoms or “life” issues but does not necessarily meet the diagnostic criteria for a “disorder”. There is a clear need for EAPs to significantly increase utilization, create a cost “off-set” in the employer’s health plan, and of course get paid more for doing so.
A self-funded employer spends a combined total of $145.00 PEPY for outpatient counseling/therapy + EAP, but only about 11% of that amount is allocated for EAP. EA providers can and should find a way to take a much larger share of the $145.00 rate.
Commodity Sales and Reduced Profits
A common but tragic strategy in EAP sales is to use an approach that, “we can give you the same (or better) program as the higher cost bidder for 40% (or more) less”. Some vendors make their pitch even better by adding new, shiny, “technology” features to their package of EAP solutions, even when it’s not clear when these features actually add incremental value or contribute to a measurable outcome. It seems these features frequently end up being more of a “sales strategy” than a genuine utilized tool for ongoing employee or user engagement and ultimate behavioral or lifestyle change.
This feeble but highly successful sales argument works because the buyer cannot discern how the various bidders differ from one another and the more expensive bidders cannot clarify the value underlying their higher cost.
Much like Walmart, the largest vendors have reduced their costs and prices over time and pursued high volume in order to try to make money on thin margins and managed or low-service utilization.
These types of commodity sales exist because some EAP providers – particularly the largest ones - have deliberately selected and pursued this type of sales strategy. Commodity-type sales encourage buyers to ignore a real value proposition in the quest for the lowest price
Buyers of EAPs think they are making solid decisions with low-price proposals but in reality the decision is frequently flawed. This is because buyers are shielded from the actual cost to deliver an EAP – costs that are usually invisible or hidden by what appears to be a byzantine system of deflecting or reducing the type and amount of service utilization.
Examples of Care “Invisible” to Purchaser
The following are examples of how this byzantine system of deflection makes substandard care largely invisible to the employer purchaser. It is important to note that the pervasiveness of these illustrations is unknown, and the sources include ex-employees from large EA vendors who confidentiality stated these were deliberate strategies to manage the cost and utilization in order to squeeze a profit margin out of a low bid.
* After an initial telephone intake consultation, the employee is carefully “steered” towards (a) receiving self-care instructions, (b) a referral to a website or online program, or (c) a direct specialist referral covered under the employee’s health benefit plan with co-pays and deductibles (not “free” EAP counseling for up to six sessions).
The employee’s situation is addressed at the EAP call center with a single phone call and no actual intervention or brief counseling with a qualified professional working for the EA vendor. With this approach, the EA vendor avoids payments to an “affiliate” clinician at an average rate of roughly $70.00 per session.
* Definitions of “utilization” vary significantly by vendor, and some providers use inconsistent definitions to inflate or distort actual utilization rates and services. This gives the employer (customer) an impression of good or acceptable vendor performance without knowing how the utilization metric was determined and calculated – or exactly what modality was used to serve employees (e.g. telephone, online, or face-to-face).
Capitation Does Not Lead to Better Value or Rate Increases
We need a better way to get paid – a method that rewards EA vendors for delivering superior value to employees (clients) and employers – in other words, for achieving outcomes at a reasonable rate. Our dominant payment model – capitation or “per-employee-per-month” (PEPM) – is arguably one of the biggest obstacles to improving our place in the employer’s portfolio of benefit offerings.
Redefining and carefully measuring value is absolutely essential to (1) understanding our actual performance, and (2) increasing our rates. Under the prevailing method of capitated pricing – where employers make a single PEPM payment for each covered employee regardless of service utilization – EA vendors with superior utilization and outcomes have no way to bill their superior services or higher utilization.
Capitation fosters misaligned motives by having vendors assume financial risk against program use. It puts the focus on limiting the overall amount of services delivered without tying outcomes back to the individual employee. As a field, EA has struggled and largely failed to relate costs to the actual outcomes produced – and capitation has exacerbated if not largely caused this problem.
Capitated pricing has also contributed to consolidation of EA vendors as vendors bear greater actuarial risk – and there is an incentive to amass as large a population of covered employees as possible to spread risk and “make it up with volume”. The end result has been the emergence of a few dominant national and global EA vendors, which ultimately reduces competition.
Capitation not is the right solution to fundamentally change the trajectory of a stagnant field and will fail to drive the need for true accountability for outcomes. Employers, and their purchasing representatives need to move to value-based reimbursement models that tie payments to achieving outcomes that matter to employees and employers.
Why don’t most workplace buyers choose higher cost and higher-value EAPs? One of two reasons: we as sellers overestimate the actual value of our value proposition OR we overestimate the buyer’s ability to understand and comprehend our value proposition.
What is needed most is a way for providers of EAP to connect and quantify value for workplace customers and to measure and verify that customers actually received the value that was promised. This solution must include the credible and rigorous measurement of outcomes. It must also include common and agreed-upon standards for defining a “case”, calculating “utilization”, and describing service modalities at the individual employee or “user” level.
Without these standard definitions, variations in utilization rates and performance metrics are an illusion created by differences in methodologies and calculations rather than in vendor practices. We need to bring greater objectivity to this predominant theme of measuring value in EA services, which is now mostly subjective, anecdotal, and intuitive.
Value Should be about Outcomes
Michael Porter defines value as, “outcomes achieved relative to costs incurred” (Porter and Kaplan, 2018). Using this definition of value, the success of EA work exclusively depends on measuring employee outcomes or the actual results of services, not just the volume or process of service delivery.
An EA vendor cannot really have a true value proposition unless that proposition includes the measurement of results – outcomes that occur after the EAP intervention is complete (which does not mean a post-EAP-use measure at the last session), are the end result of the intervention, and are directly linked to the intervention.
It’s really only about what degree the EAP intervention correlates with improved work effectiveness, life functioning, or symptom reduction. In the world of EA work, what else matters?
We can no longer afford to obscure the link between EAP processes and outcomes. Access is a basic requirement to achieving an outcome, but access per se does not constitute value. Client satisfaction with the process of EAP can be a contributor to outcomes but is not a true outcome. An EAP client can be pleased with the access experience, appreciate the EA vendor’s website, and even “like” his or her EAP counselor but have no improvement clinically or in the work setting.
Conversely, and while rare, a client can dislike his or her EAP counselor and have improved work performance as a result of the EAP intervention. While access and service experience are usually very important ingredients for positive outcomes to occur, the risk of focusing solely on measuring friendliness, convenience, ease of appointments, website features, phone apps – rather than outcomes – is a distraction from true value-based improvement. Simply put, measuring true value as a way of increasing rates requires the credible measurement of outcomes.
Options to Capitated Pricing
* Value-based reimbursement. This term describes an arrangement where service providers are paid based on the attainment of specific outcomes or quality indicators that are valued by the funder (or employer). Payment can be in the form of bonuses (up-side risk) or penalties (down-side risk). Examples in EAP include:
** Employee self-report of decreased absenteeism or presenteeism at case opening and then at a 90- day follow-up.
** Supervisor report of improved employee work performance following a supervisor referral.
** Percent of supervisor or manager consultations that result in a formal referral to EAP.
** Employee self-report of symptom reduction or clinical outcome at case opening and then at a 90-day follow-up.
** Percent of substance use cases that followed through with a treatment referral and completed continuing care.
When proposing value-based reimbursement as an alternative pricing model, consider this new mock sales pitch: “Please be aware of something right from the start. When it comes time to propose a price for your EAP, I can guarantee you we will not be the lowest price. I intend to demonstrate to you why that does not matter. I will help you evaluate how my program will reduce your costs in areas other than the low price of an EAP, so your total cost picture will be more attractive, even with my higher price or the chance to receive a bonus”.
* Budgeted utilization model. This model involves the employer paying a fee based on a budgeted or expected utilization rate. At the end of a year, if utilization exceeds the “ceiling” the employer is sent an invoice. If utilization is below the “floor”, the employer receives a “credit”. This reconcilable option offers a structure that adjusts during each program year to reflect actual usage.
Another variation on this model is a hybrid of capitation and fee-for-service, so the employer only pays for services received. This hybrid typically includes a PEPM that only covers administrative costs such as access, reporting, account management, promotional support, and online features. The employer then pays a fee – something like $75.00 – for each counseling visit actually received. The budgeted utilization or hybrid model can also have elements of value-based reimbursement tied in.
* Bundled payments are a variation on what used to be called a “case rate”. The total amount of a bundled payment should be lower than the sum of fee-for-service elements that make up the bundled payment.
For example, if the case is short-term counseling within a six-session EAP model, the bundled payment should be significantly less than six visits x $75.00 a visit. The payment should account for variations in service modality (e.g. face-to-face, telephone, online) and average numbers of visits.
The determination of a bundled payment rate should be based on historical utilization data (such as an average number of visits in short-term counseling, which could be three). Any bonuses should include aggregated evidence that the client’s presenting problem was resolved within the EAP, thereby preventing use of the more expensive health plan.
Unlike capitation, this approach has built-in accountability for outcomes with incentives that don’t involve denial, delay, or deflection of the intervention itself.” The idea is for the payment to cover the full cost for handling the employee’s case, and the bundled payment can be tied to achieving outcomes that matter to the employer.
Combining the proper and credible measurement of outcomes with a new pricing model is the single most powerful lever for improving rates and value in EAP. Current measurement efforts in an applied setting such as EAP are never perfect, but the process of measurement has begun with a standardized tool known as the Workplace Outcome Suite.
If employers, EA vendors, benefit consultants, and other stakeholders were to embrace outcome measurement as a central goal, our field could move beyond sustainability as a goal and as a result, thrive instead of merely survive. Much remains to be done but we have to start somewhere.
David Sharar is the CEO of Chestnut Health Systems. He co-developed the Workplace Outcome Suite, a free and scientifically validated tool designed so EA providers can accurately measure the workplace effects of EA services. He can be reached at email@example.com
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