How Employers Can Control Rising Healthcare Costs w/ David Neikrug, CEO of Optimatum Solutions

Employers struggle with rising healthcare costs, and their usual approach is to work with a bevy of vendors, including insurers, provider networks, point solution providers, and HR supply chain vendors.
But these vendors are awfully hard to optimize and costs seem to keep on climbing.

In this episode of the HealthBiz Podcast, David Neikrug, CEO of Optimatum Solutions, joins host, David E. Williams, to explain how poor vendor management fuels rising employer healthcare costs and what to do about it.

🎙️⚕️ABOUT DAVID NEIKRUG
David M. Neikrug is a leading authority in the application of vendor management to the Human Resources supply chain, which encompasses applications, programs and vendors that deliver employer-sponsored healthcare, retirement, HR systems and M&A transitional services. With over 30 years of experience, David brings an extensive expertise and comprehensive understanding of the HR challenges facing today’s employers and serves as an advocate on his clients’ behalf to ensure vendors are accountable, transparent and deliver on their guarantees.

David is the Founder and Chief Executive Officer of Optimatum Solutions LLC, a vendor management firm focused exclusively on the HR Supply Chain. David founded Optimatum in 2007 to fill a gap in the vendor management marketplace. His approach centers on improving client/vendor relationships through forensic analysis, vendor relationship optimization and ongoing management. 

🎙️⚕️ABOUT HEALTHBIZ PODCAST
HealthBiz is a CareTalk podcast that delivers in-depth interviews on healthcare business, technology, and policy with entrepreneurs and CEOs. Host David E. Williams — president of the healthcare strategy consulting boutique Health Business Group — is also a board member, investor in private healthcare companies, and author of the Health Business Blog. Known for his strategic insights and sharp humor, David offers a refreshing break from the usual healthcare industry BS.

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Transcript

David E. Williams: 0:00

Employers struggle with rising healthcare costs, and their usual approach is to work with a bevy of vendors, including insurers, provider networks, point solution providers, and HR supply chain vendors. But these vendors are awfully hard to optimize and costs just seem to keep on climbing. Hi everyone. I'm David Williams, president of Strategy consulting firm, health Business Group, and host of the Health Biz Podcast, where I interview top healthcare leaders about their lives and careers. My guest today is David Neikrug. He's CEO of Ultimatum Solutions, which provides employers with tools for vendor accountability and vendor management process improvements. Do you like this show? If so, please subscribe and leave a review. David, welcome to the Health Biz Podcast.

David Neikrug: 0:48

Thank you. And thank you for the opportunity.

David E. Williams: 0:50

Yeah, David, I, uh, we can talk all about the sort of things that you're wrestling, uh, with now, including some things here in our, in our backyard, in Boston, uh, related to, uh, steward Healthcare System. But before that, love to just jump in and hear a little bit about, you know, what your childhood was like. Any childhood influences that have, have stuck with you.

David Neikrug: 1:08

Thank you much. So I would say from an influencer standpoint, clearly, who. Definitely, uh, push the envelope and ensure that whenever we needed something, we got it. Uh, specifically when the traditional model or traditional source may not have had it. So I would say that is, um, what drove to where we're,

David E. Williams: 1:30

yeah. Anything specific you wanna share an anecdote? Uh,

David Neikrug: 1:32

just making sure from an educational perspective, going above and beyond when the existing system may have been limited back in the days, uh, where today it doesn't happen. He definitely, uh, made sure and in those days, you know, paid for a taxi to go take me to from point A to point B, which, you know, in the late seventies, early eighties. A mind boggling, uh, excursion, but def but that's,

David E. Williams: 1:58

yeah. Nice. And what did you do in terms of, uh, you know, after high school? What'd you, what'd you do for school? Uh,

David Neikrug: 2:04

simple management degree in the old and, uh, from there landed up, uh, focusing on some marketing and. Up in this world.

David E. Williams: 2:14

Yeah, that sounds good. So what did you do, like along the way after you graduated from school, did some marketing stuff, and then you founded, you know, ultimatum fairly early on in, in your career? Or had you done a bunch of stuff before then?

David Neikrug: 2:24

So, my first 15 years was in the traditional HR and benefit consulting world. 75% of it was employer consulting. Uh, 25% of it was vendor consulting. So think about, uh, helping the vendors try to understand in those days what the HR outsourcing world was like in 2005. I, my firm. Ended up being, uh, integrated with Capital H Group, which was a VC backed HR consulting firm. And in 2007, I founded an ultimatum.

David E. Williams: 2:54

Got it. And did you know you wanted to be a founder, or did you, you know, sort of expect, you just kind of continue along, you know, working for, for others? How did you, uh, make the, make the jump in that sense?

David Neikrug: 3:06

I definitely, after the first round said, uh.

David E. Williams: 3:10

Not. Yeah.

David Neikrug: 3:10

And then they'll up doing it again. Yeah. Why? Why? Because I went around at that point in time, looking at the middle mar solutions for middle market employers, and I'll define middle market employers or organizations, let's say between 510,000 employees. So organization that have some sophistication. Complexity without the net traditional resources, uh, that they need. When they have those complexities and looked at all the large players, had conversations with them about here's what needs to happen, and they sort of didn't understand the model, the model that's applied to Fortune 200 companies of consulting and traditional deal cycle and life cycle and engagement. Has to be adjusted for the middle market. While everyone said they wanted the middle market, they didn't. They came from a financial and revenue perspective. So I took a step back and said, okay, what's going on? What does the market have? What does it not have? Candidly, I did not wanna Beano just. One, one more consultant. To be successful every morning, you have to, you know, figure out how you're gonna prove that you're better than the next guy. And there are a lot of great Ben HR and benefit consultants out there. The world didn't need another one. Uh, but I did take a step back during a process and say, what is out there? What do vendors have, what organizations need? And that was the impetus of starting Ultimatum, which was bringing vendor management to HR and defining HR as a supply chain.

David E. Williams: 4:40

Got it. Alright, so I think I understand that, you know, you've got the, the Fortune 100, 200, whatever it may be, and they have a lot of in-house resources. They can, you know, they've got these scale economies when you're going across tens or hundreds of thousands of employees to go and really tailor things for themselves. You got the little guy who just, you know, signs up with Blue Cross or whoever's offering the, you know, the cheapest thing, uh, this year. And then you've got this middle market, which is a, a large number. Of enterprises and they've got, you know, they're, they're of a certain scale, so they, you can't just do it, you know, off the side of your desk. You need someone, you need some help with it. And, you know, these middle market companies, they do work with a lot of different vendors, but they, they seem to struggle to. In a way, uh, especially in healthcare, which I'm most familiar with. But, you know, talk about the sort of supply chain as it relates to HR and how healthcare, you know, does it dominate that? What are the, what are the kind of the key, what are the key kind of issues that a middle market company finds itself in, you know, before they find a, a company like Optimum.

David Neikrug: 5:40

Well, what they're dealing with is they're not treating healthcare right, or retirement plan services or HR systems, payroll and the like. The same way they would treat any other outsourced relationship. So if you take it a step back for a moment and you look at any sort of outsourced relationship, IT, logistics, energy, manufacturing, you name it and you say, okay. Going into a relationship with X, Y, Z vendor for contract manufacturing for it. I have an agreement. That agreement has a service level agreement and a performance guarantee that they're gonna provide services at a certain time, at a certain level, and if not x, Y Z's gonna happen. When you think about that and then think about HR and you look at employer sponsored healthcare, well, let's guess what. They're all, it's an outsourced relationship today. Companies aren't adjudicating their own healthcare claims. They're not doing their own daily vows and retirement plans, and most aren't doing their own gross to net on payroll. So guess what? It's an outsourced relationship, but the executive doesn't think about it as an outsourced relationship. If you go ask your friendly CEO or CFO, Hey, what are you doing about your it? Oh, we outsource to so and so. What are you doing about your logistics? We outsource it to so and so. But you ask that same executive, Hey, what are we, what are you doing about your employer sponsored healthcare? We use so and so. What do you do about your retirement plan? We use so and so. So there's a fundamental disconnect or challenge. I would say that because the executive is not asking, there's the same questions or demanding within their services agreement, the same things that they would. Demand from any other outsourced vendor there becomes problem number one.

David E. Williams: 7:25

Got it. So, you know, I was, uh, part of a panel discussion that was, uh, that was being, uh, set up by, uh, basically health plan and the kind of employer coalition. And they're trying to get the owners of companies, maybe small and mid, mid-size companies to actually kind of push on the healthcare system. And what they would find is that because the costs are kind of, you know, going up and the. The providers are a lot of times spending a lot of money and the, and the drug companies, and they're, they're trying to get, they're trying to get some engagement here. And I think what we found was people, when they start to engage with it, one of two things happens. One is that they start getting hit by jargon. They have no idea. When you start to talk about what you know, what is this, uh, capitation, value-based care, all these sort of things, I have no clue. And then it's also sort of, Hey, that's just a benefit. It's healthcare. The employees should get what they want. All that, and then they kind of stop and maybe in a way that they don't do with logistics or it, do you see that dynamic?

David Neikrug: 8:24

Oh, that's the problem, is that they just, or they're reliant on somebody who's supposed to understand. Right. And that you have to think that through. So the jargon is there, right. The prices go up and they, there's a knee jerk reaction is throw out the baby with the bath water and run an RF. And that's because the other, the, you know, the other part of the businesses, people are predicated on that, right? Let's go to the next vendor. It'll be cheap, it'll be better when in today's day and age, you know, no one knows better than you is. We're down to five national carriers on a good day. So if you have three, five problems with vendor A, you go to vendor B. Two are gonna be fixed, three are gonna be the same, and you can have another two new ones that you'd never, that you didn't have before. So what did you accomplish? Exactly. And that's, and that's going back to, if I may for a second, what we're, you know, as I was talking before, is that if executives would treat these agreements the same way and not be afraid of it, and under demand that, hey. You're, you know, what is your accuracy, right? What are the, you know, customer satisfaction, employee satisfaction, all these things, right? And demanding accountability on all the various solutions that are out there. We'd be in a different place. So, talking about pushing back on the, you know, the, the payer world, the vendor world.

David E. Williams: 9:48

I wanna ask you about a project that we talked about last year when you're coming up in our, our neck of the woods. And I referred to it a little bit, uh, in my introduction, and that's when you know Steward Healthcare. I guess imploded, I don't know what the right word for it, but they went bankrupt, uh, let's say that. And there was a lot of, uh, concern in Massachusetts that, you know, patients were suddenly gonna lose, uh, access to these hospitals and, and so on. And the government kinda stepped in there and a lot of the emphasis I saw was about. You know, communities, patients, and so on. But I know that behind there too is that as you're reorganizing and as one hospital is acquiring another, uh, you know, the employees and their benefits and their own healthcare need to be looked after as well. So can you just unpack a little bit what, you know, what, what happened here and the sort of services you provided to, um, you know, to make that, uh, kind of challenging situation slightly less challenging, at least for the employees themselves?

David Neikrug: 10:42

So we got called in, uh, as you mentioned, within, uh, on a five week timeline to integrate, uh, both Holy Family Havrilla Methuen into Lawrence General. Needless to say, uh, Lawrence General had never done a deal, an acquisition before, and it was, uh, very, uh, unchartered waters dealing with that while net. It was a very successful integration from ensuring everyone was, you know, paid on day one. Everyone had benefits, things of that nature. Uh, clearly pulling that off in five weeks, uh, and offer letters were pulled off in 72 hours. DocuSign all 1400 by the way. Um, uh, one of the challenges was just the number of stakeholders. And I wanna be cautious here on the number of, of CBAs that were out there and the number of people who are used to a certain level of benefits that maybe, you know, what you're used to in the for-profit world, which Stewart was, right. Stewart was a private equity rollup of 31 hospitals to the. How that all transpired. Was definitely, you know, for the listeners, it's definitely, uh, information is available in your local newspapers around that. But it was an interesting time. It was an interesting time to get in there and understanding, and every day was prioritizing and reprioritizing this to make sure it happened, right? Yeah. Again, five weeks of getting it all done. New systems had to be, uh, brought in place. Those are the types of things that have, technology wasn't where it needed to be. And all of that was a full refresh for Lawrence General, which they did very well. They, they bit the bullet and they ran with

David E. Williams: 12:47

it. That's good. Well, and you're being modest about, uh, what you did there.'cause the whole thing was, uh. You know, well would use the term for it. That's not, you know, this, I want to be for general audiences, uh, here, but, uh, it's a, a mess and, uh, you know, I helped to sort it out as much as best as anyone could do. So congratulations on that. Thank you. Let's talk about, um, you know, vendor management bit more. Let's dig in on that. And you did a white paper on it and you took an interesting approach because. You did a, from what I could tell you did a survey of the surveys and why did you take that approach and, and what sort of challenges did you, uh, did you identify, uh, in doing so?

David Neikrug: 13:23

Oh, historically, in being in front of the endless number of employers over the years that I've been in. I can't tell you how many times I've sat in front of an employer who says, you know, has their great analysis that was done. We'll call from, you know, the consulting world, the old 300 page three ring binder of all these issues. And you go, well, do you know you have a problem about X? And they go, oh yeah, it's there. It's, you know, and they knew about it. They knew, but they never did anything about it. And you look at all of the. Consulting firms that are out there, as well as some other organizations that every year they churn out ano a, a survey about healthcare trends, healthcare costs, and if you read one at this point, you've read 'em all because they all say the same thing. They're all talking about what are they doing about shifting costs? What are they doing about new products point solutions? What are they doing about adjusting a formula changing? But none of 'em are talking about vendor management. Going back to what I was saying before, with the world of bring vendor management right to the world of HR and ultimately to the vendors under there, is that if you treat it that way, right, as an outsourced relationship. And then you demand the services, right? What is vendor management? Vendor management is bluntly, and basically it's a lot cheaper to fix a problem than replace it. So that's where we are. Is that saying if, if you take a, you have a problem with vendor A, work with them, figure it out. Unless there's gross negligence, which bluntly have I seen? Yes, but rarely. Or they've just outgrown them. Something's happened. You were dealing with a carrier or a vendor that was used good for a 400 employee group, and today the group's 5,000 and just, they've just crashed the system because there's no way, there's no reason to move from vendor A to.

David E. Williams: 15:32

You know, that's a very interesting, um, approach. I know one of the things that I hear from employers when I speak to them about, you know, doing something about healthcare is they're very concerned that if they do something that it, it, it sort of implied that they're gonna change vendors. They say they don't wanna have the disruption, you know, people getting a new card or they gotta get a new phone number or something. They're gonna lose relationship that they had. And it sounds like you're basically saying. A lot about is not like vendor A is better than vendor B, although I'm sure there's some of that, but is how you manage them. That could make a big difference. And if you do it right, you don't need to have this disruption that it's kind of a false thing to say, I can't do anything because it's gonna cause disruption.

David Neikrug: 16:10

Yeah. Listen, I was on a call last week with a client that has been with a vendor for six years and there's one particular, you know, division that is creating a lot of noise. And they pushed the executive team to run an RFP and they ran the RFP net net. They're not moving. But I said to them throughout the process, so Optimum does not run an RFP. We leave that to the traditional trusted advisors. But I was having a conversation with their client because we support them in different ways, is do you have the data points of what that particular division was complaining about or bellyaching modify, and they couldn't easily articulate it. It's all one-offs. And that's the issue is that if there's a systemic issue, then it, but listen, with the, if you think about the amount of data that goes through any payer today, there is no, with all the automation and everything else today, there's going to be hiccups. It's not a perfect environment'cause you're relying on too many resources and anybody that's tried to streamline the process from going to the dock to paying the claim. To a single database, which people have tried. We don't have it yet. And that's, I would say, you know, something to keep in mind. Can it be fixed? Can it be improved? Yes, it can. But understanding the issues and what they really are and figuring out what's important to you.

David E. Williams: 17:53

So when we talk about vendor management, is it in fact the case that the, the companies have a lot of vendors that they're dealing with, and is that part of the, the issue? What, like, gimme a sense of, you know, typical mid-market company. How many vendors are, are you dealing with in when you're dealing with a vendor management strategy?

David Neikrug: 18:10

Vendor management sometimes could be, you know, three or four vendors. We've walked into employers that have 15 to 20 vendors. It's more about bringing the tools of vendor management. So vendor management isn't new, right? Vendor management has been around for 25, 30 years. It's a subset of the outsourcing, the BPO sector, and it's working with those vendors to say, Hey, in your agreement or in your pitch, right, it's aligning the sales proposal to the agreement to actually what's happening and focusing on that and saying, Hey, you promised to do all these great things. Here's what's really happening. Let's get back and, and to actually delivering what you promised to do, promised a great generic utilization rate. You promised that, hey, we're gonna control your individuals with chronic conditions. We're gonna, you know, discounts. Right? You know, various metrics that there, listen, administrative service agreements, agreements do have. Terminology as well as performance guarantees in, but there are caveats, as an example, like, well, we need 70 or 80% of accurate phone numbers or accurate email addresses. Employers usually don't have their data that clean, so while it's being provided to them, it's the employer doesn't realize, oh, we have this SLA, but what's the state of our data? Otherwise, it's worthless.

David E. Williams: 19:42

Got it. So, alright, so I'm hearing some interesting things. So one is that usually a company can stick with a vendor unless it's negligent, which is rare or they've outgrown it. Um, and then also that the agreements themselves are decent and may actually have a lot of the mechanism, they may have a lot of the, the kind of the framework and the, the, uh, service level. Um, service levels defined, and it's probably managing those better. Is that right? Or do you often need to go back into the agreements and said, look, they focused on generic utilization, but that's, you know, that's 10, that's a 10 year ago thing and we really need to focus on something else. What's the mix between just. Kind of executing better and holding the, the vendor responsible versus saying we need new kinds of agreements and new sort of, uh, metrics.

David Neikrug: 20:26

Well correct. So number one, uh, you hit one of the nails on the head, uh, which is the SLAs are outdated from where we used to be and where we to where we are today. And that's number one. Number two, an employer needs to understand the, the intricacies of the SLA and what does it really mean. It's great to see it, right? I want an SLA for number of days to get the ID cards out. Guess what? You don't need those today. You need, you know, first call resolution. You need to make sure that when they're right, uh, escalations, what's the number of days, what are the issues or what we do a lot of, as an example, is let's say there are 20 SLAs in an agreement. And they're sort of spread like butter, peanut butter, whatever you term you wanna use across a lot of a little. But the employer really has three or four things that are material to their business or that they really want. What we've done successfully is gone to a vendor and say, you know what? We're gonna give up these 20. Take all the money that you have at risk and let's put it on 50% of these four. And to start fixing one little thing at a time, baby steps. And if you focus on it that way and addressing the issues that you're hearing from your employee base or from your HR business partners or from your executives, that this is an issue, there's nothing that can't be fixed, and vendors do wanna fix it because if you think you're the only one with that problem. Every, it's a matter of, but do they need a playground or a sandbox of somebody that's willing to try? If I may, for an example, think about surveys after the call, right? The percentage of employees that actually complete those surveys as negligent, so therefore, the data on employee satisfaction is all skewed. We have worked with vendors and employers that says, listen, let's do a raffle. Let's do a gift card. Let's do something for every person that completes it. How do we incentivize that employee to fill out the survey so we can get all, get better data looking at those, so thinking through what is the root cause and what's driving it, and how to adjust that accordingly.

David E. Williams: 22:58

Now when a company you, you've mentioned, you know, some, um, approaches and some specific things that companies can do, is it important for a company to have a kind of overall vendor management strategy? And if so, what does that look like?

David Neikrug: 23:13

Organizations today that have formal sourcing or procurement departments have vendor management resources in place. It's applying that to hr, which traditionally does not have. And that's was the impetus of founding TUM to bring the concept of vendor management to hr. No different than any other sector.

David E. Williams: 23:40

Got it. So I always hear about, you know, all these things people are doing in in healthcare and you know, they're gonna cut this cost and so on. When we step back and take a look at the result, like somebody that really follows your advice and kind of a whole program, how do they look different, maybe different than they did or different from peers in the, in the industry and I. How often does this happen and how often do things just sort of like revert back to the, whatever the the mean was?'cause you, you know, the classic thing that you squeeze in one place and it, you know, goes somewhere else. I mean, do we see fundamental changes or this is more just sort of people keeping busy and kind of, of a whack-a-mole type of an approach?

David Neikrug: 24:21

Well, the question is, is it a diet or is it a lifestyle change?

David E. Williams: 24:24

Okay.

David Neikrug: 24:26

We've gone to plenty of clients and say, Hey, in general for employers, we're looking at 10 to 12% year one, five to 7% year over year for people that follow. What happens is we'll go in, identify things, Hey, A, B, C, D, they'll start, they'll try and then they say, oh, we got it. They take the, you know, they lift their foot out and they move on. Um, that does happen and therefore, you know, but for employers and our clients that are really committed to mitigating trends. Be cautious here.'cause cost savings versus you're still fighting trend. Yeah. I haven't solved, I haven't solved the trend issue yet. We can mitigate it. Yeah, we can't mitigate it. So by mitigating, you can mitigate trend by addressing and actively managing pieces of the pie pieces.

David E. Williams: 25:23

Yeah. Got it. You know, I sometimes have seen things where employers would try to take more gun draconian approaches. Like they might implement, you know, very narrow networks or reference based pricing and things like that, that, that tend to get a pushback.'cause you're, it's kinda like in risky business, you know, don't mess with somebody else's, uh, another man's livelihood. Um, it sounds what you're doing is a bit different than that. And maybe, like if I'm a vendor, I don't necessarily mind being. Managed by you, because if it's gonna be done well, then maybe, maybe the company's not just holding the, the vendor accountable, but is maybe getting the most value out of what the vendor can really deliver. Is it like that or is this more of like a zero sum game?

David Neikrug: 26:04

No, it's, listen, our objective is to partner with the vendors to improve their relationship, which ultimately for the vendor is a, you know, stickier relationship with their client, with the employer. Right. You're looking at a situation where, you know, we've been with this vendor X number of years, let's continue there. Why do we need to switch? And that's the key. Our objective in life is to improve the relationship and keep it going versus having to swap it up.

David E. Williams: 26:36

Well, let me ask a final question that I ask all of our, uh, guests, which is about, uh, book recommendations. If you read any good, any good books lately, business or not over any, or not even lately. Um, you know, anything that you would recommend for our audience. And of course, if you've, if you, if we're doing a, like a book management system, uh, any book that you would recommend, uh, that we avoid.

David Neikrug: 26:58

Uh, I would say on a non-business level, but can be applied to business. So that is a recent one called, uh, dare to Author by Leo Ruey. Really after Lyor writing seven or eight books on business topics, uh, he went to different route and it's an incredible book.

David E. Williams: 27:16

Awesome. All right, we'll take a look at that one. Well, good. That's anything you wanna say? You'd like to avoid reading?

David Neikrug: 27:23

Uh, I don't know if, if you want to, now there's, uh, the other book I'm reading right now is a, uh, definitely in the business side. It's do you have your, you know. Is your seatbelt ready

David E. Williams: 27:37

more? Yeah. Yeah. Okay, good. Yeah, I I, I, I don't like reading AI generated content. I'll say that. And some, some of those are going into books, uh, now, but good. Well, that's it for another episode of the Health Biz Podcast. My guest today has been David Neikrug and he's founder and CEO of Optimum Solutions. If you'd like what you heard, I hope you'll subscribe and leave a review. David, thanks so much for joining me today.

David Neikrug: 27:59

Thank you. Have a great day.