Craig Lack just challenged the U.S. government to a game of one-on-one. Lack balled for Long Beach State's basketball team decades ago, but this isn't a courtside matchup; it's a battle of wits that pits Lack--now a health care consultant who saves big companies millions by showing them health care loopholes--against Obamacare regulations. And in this fight, Lack is crushing the feds.
Look at the scoreboard.
His solutions saved one business $21 million in a single year. A school district kept $15 million in its coffers. And an energy company in the American south is $4 million richer thanks to him. Results like that make Lack, a bestselling author and CEO of consulting firm ENERGI, the most effective consultant you've never heard of.
Fixing American Health Care
When I interview Lack, the bookshelf behind him isn't stuffed just with books on the health care industry and medical law; it's stuffed with books on everything--with an emphasis on behavioral psychology.
America's $3 trillion health care industry is incentivized toward bad behavior. Most billable procedures rely on volume to turn a profit, according to Lack. A doctor might bill for a procedure, but not for activities that would have prevented that procedure. As a result, hospitals that make money every time you visit have little incentive to remind you to take the meds that might prevent a visit in the first place.
"What's the incentive for them to manage unnecessary care?" suggests Lack. "Nothing. The more tests they run, even if they're not effective, the more they get paid."
Obamacare was passed in 2010, in part, to change that. The law creates billing codes for some activities that prevent hospital visits, but it's imperfect (if you couldn't tell from its legions of critics): The U.S. health care system is still riddled with charge-for-volume activities, false or inflated insurance claims, huge up-charges for basic procedures, and recommendations for unnecessary health care.
This sounds like a nightmare CFOs should be addressing personally. The problem, Lack explains, is that the C-suite generally has no idea it's even a problem. They've assigned responsibility for it to people who are inadvertently mismanaging it.
Rate negotiation and health plan purchasing are tasks handled by middle managers who don't have the time, skills, or inclination to stick their neck out and secure lower insurance rates. "Too many organizations settle for just renewing at a lower rate increase than national benchmarks or internal budget targets. They don't realize they could actually get a rate decrease rather than an increase," says Lack.
This preservation of the status quo seems to be a blind spot for many C-suites, who don't realize how much money they are leaving on the table. Lack estimates it costs companies $1 million per 1,000 employees per year.
"Big companies have no idea how much money they're leaving on the table with health care." -- Craig Lack
Paying Only for Performance
Lack's approach aligns the interests of executives, employees, and insurance brokers, and he gets paid only if his clients save money. And with eight-figures in revenue, his company saves a lot of businesses a lot of money.
"The goal is to reduce the number, size, and frequency of health claims, without shifting the cost to employees, limiting access to care, or reducing benefits," says Lack.
He primarily helps companies that subscribe to a "pay-as-you-go" self-funded approach, which means they pay health care claims out of their profits. Without insight into why they pay what they do for a health insurance plan, they can be on the hook for massive liabilities.
"1 percent of employees are responsible for 20 to 25 percent of the entire company's claims," Lack's research has shown.
"Five percent incur 50 to 60 percent of all claims. And 50 percent incur 3 percent or less," says Lack. And no matter which tier employees fall into, they're all incurring claims from a health care system designed to, well, generate more claims. The financial consequence to the employees and their families can be devastating as out-of-pocket expenses can exceed $6,000 for an employee and over $12,000 for a family--in addition to their premium contributions.
That's why Lack starts every client interaction with a pro-bono analysis, which outlines how much money companies stand to lose for maintaining the status quo.
Once a company benchmarks their current and future numbers, Lack designs solutions that help their brokers eliminate inefficiencies, navigate the regulatory nuances of Obamacare, and formulate a strategy to get employees enrolled in a better plan.
Scaling Obamacare Savings
Lack just submitted a proposal to a Fortune 100 company showing how he could save it $34 million per year based on his approach. Solutions like that translate into big profits for Lack. His firm takes a 25 percent cut of the savings.
But there have to be savings first. He's so confident his approach can save millions that his cost structure ensures he doesn't get paid in any quarter where savings aren't realized.
That kind of success has allowed Lack to design his business around his life, which includes adventures with his wife and children, such as traveling, mountain biking, and playing competitive paintball with his youngest son. But that doesn't mean he's slowing down. If anything, he's proved the value of his model and he's setting his sights higher than ever: on publicly traded companies.
"If you're Disney and you spend $1.4 billion on health care and I saved you just 7 percent, that's $98 million in EBITDA," says Lack. "That could be worth $800 million in increased market cap at the end of the day."
That might not be too far in the future. Companies are starting to realize they don't know how Obamacare is affecting their bottom line, and the cost shifting and out of pocket expenses are ruining the lifestyles of many employees. And with your average American less healthy than ever, businesses are racing to find more sustainable solutions.
"Unlike the purchasing manager, I have the time, temperament, and talent to research which companies have done a superior job and replicate those results," says Lack. "I get educated. I consume the books and learn everything on the subject so that the CFO doesn't have to. That's what I get paid to do."