Are Centers of Excellence On the Decline?

Key Takeaways

• About 1 in 5 large employers (200 plus employees) offering health benefits in the US utilized Centers of Excellence programs in 2024, mirrored the utilization rate among large employers in 2023.
• Although total Centers of Excellence utilization was consistent among all large employers between 2023 and 2024, the utilization rate increased among the smallest subset of large health-benefit-offering employers (those with 200 to 999 employees), while Centers of Excellence utilization fell among employers with 5,000 or more employees.
• Centers of Excellence can lower costs for employers by more than 10%, which is why a substantial number of employers require employees to seek care from designated Centers for Excellence for certain procedures, and why an even greater proportion of employers are willing to cover employee travel expenses to do so.

‍Article: Are Centers of Excellence On the Decline?

‍The proportion of employers offering employee health plans that utilize Centers of Excellence may have hit its high water mark and begun to recede among the nation’s largest employers. 

Centers of Excellence have been an increasingly prominent component of employer-sponsored health plans since they were first introduced in 2014. Still, after 10 years of largely consistent growth, the tide may be turning. 

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‍Centers of Excellence: By The Numbers

‍In the US in 2024, about 19% of all employers that have 200 or more employees and provide health benefits offered access to some form of Center of Excellence program to their employees.

That number has essentially remained unchanged at 19% year-over-year from 2023 for all US employers that provide health benefits and have 200 or more employees, which indicates that the Center of Excellence adoption growth has stalled at the macro level across all large employers within this range.

What’s more interesting, however, is noting how Center of Excellence participation has changed from 2023 to 2024 when breaking down the large employer into smaller demographic subsets, which reveals a less optimistic vision for the future of Center of Excellence program growth.

From 2023 to 2024, among employers that offer health benefits, for example, the smallest subset of large employers - those with between 200 and 999 employees - increased from about 15% that had incorporated Centers of Excellence into their offerings in some way as of 2023, to 16% who have done so as of the 2024 data.

While that change reflects a relatively small increase in proportion, employers with between 200 and 999 employees are also the largest subset of large employers, so even a small increase in participation percentage indicates a significant number of employers incorporating new Centers of Excellence options into their health plan offerings that they did not provide the year before.

That said, the Center of Excellence adoption trendline is moving in the opposite direction for employers with between 1,000 and 4,999 employees, as well as for employers with 5,000 or more employees on their payrolls.

In 2023 among employers that offer health benefits and have between 1,000 and 4,999 employees, about 31% offered Center of Excellence programs for at least some conditions and/or procedures. By 2024, however, that percentage had shrunk to 29%.

The Center of Excellence participation slide was even more pronounced in firms that offer health benefits to their 5,000 or more employees, which decreased from 45% to 39% in a massive 6% year-over-year drop.

In this light, while Center of Excellence programs among health-benefit-offering employers may look stable across large employers with 200 or more employees as a whole, a small percentage gain among the subset of large employers that have the largest number of employers is offsetting more substantial participation loss among employers with 1000 or more employees.

Given that larger employers often have a disproportionate impact in shaping workplace trends and workforce expectations, Center of Excellence supporters and proponents seem to be losing ground in the most influential places, which does not bode well for these trends to turn around in the near future.

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‍Centers of Excellence: Background

‍It’s been 11 years since 8 self-insured employers joined forces to establish the Employer Center of Excellence Network (ECEN), which has served as both a catalyst and model for the proliferation of Centers of Excellence since.

The plan was relatively simple: the group would identify and contract with a few select surgeons and hospitals throughout the country that could provide the highest quality of care at the lowest price for a few select, voluntary medical procedures.

By collaborating with other large healthcare purchasers and collectively funneling to those centers of excellence as many as possible of their employees who were seeking those select procedures, these employers realized they could create a situation that is mutually beneficial for all parties involved.

The doctors and hospitals obtain a pipeline of business that allows greater specialization and potential cost savings on the supply side of the healthcare equation, meanwhile, patients receive top-notch, specialized care at a bulk discount rate.

Employers, in turn, get lower and more consistent front-end costs on the procedure sticker price, as well as additional cost reduction on the back end from more consistent patient outcomes and fewer negative patient outcomes due to care provided by less specialized or skilled medical practitioners. 

When the ECEN first launched in 2014, the group of select procedures was limited to just knee and hip replacement surgeries, but the group has since expanded to include a number of other conditions that can benefit from the model, including spinal procedures, cancer treatments, and organ transplants, for example. 

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‍How Do Centers for Excellence Reduce Costs?

‍The main benefit that Centers of Excellence provide to employers may be consistency, which is advantageous for employers on a few different fronts: 

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• Consistency of Care: Employers can ensure that employees are getting quality care from specialists who have mastered the very procedure/treatment that the employee is seeking, which reduces the risk of negative patient outcomes, lowers long-term costs, and minimizes productivity loss due to medical error and/or reinjury/remission. 
• Consistency of Improvement: Not only are highly qualified and specialized hospitals and medical practitioners selected to be Centers of Excellence in the first place, but those care providers improve on their ability to deliver the ultra-specialized procedure/treatment through consistent repetition, which leads to consistent improvement in both diagnostics and care recommendations as patient outcome evidence refines the medial approach, as well as consistent improvement in process and efficiency of care delivery, like better care coordination and discharge procedures designed to minimize the chance of readmission, all of which works to reduce cost in a feedback loop.
• Consistency of Cost: By sending employees from all over the country to one of a few select Center of Excellence locations for a given specialized treatment or procedure, employers can predict with much greater accuracy the range of costs that will be incurred in each instance. Employers with no Center of Excellence programs in place will have employees seeking the same procedure at thousands of different hospitals and medical practices that have varying degrees of experience with the relevant procedures and treatments as well as varying cost structures for providing them and varying rates of success, which can make forecasting costs significantly more tricky. In effect, reducing the risk and uncertainty of costs actually works to reduce those very costs.

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‍One study from Rand Corporation indicated that the Centers of Excellence they evaluated had reduced total costs for employers associated with the relevant procedures by more than 10% (cost savings per procedure averaged more than $16 thousand).

Patients saw even greater cost savings at almost 30% through reduced or removed copayments, which is an incentive many employers offer to encourage Centers of Excellence utilization.

Both patients and employers benefited from a readmission rate that was about 75% lower than the national average, as well.

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‍Centers of Excellence: Flexibility vs. Rigidity

‍Even though the patient outcomes and reduced costs have served as effective positive incentive tools on their own to encourage employees to seek out Centers of Excellence for covered services, a significant proportion of employers see enough upside in Centers for Excellence programs that they supplement those incentives with additional sticks and/or carrots.

With regard to negative feedback and sticks, nearly 1 in 5 large employers that utilize Centers of Excellence programs require its employees to use those Centers for certain procedures without providing an alternative employer-sponsored option.

The larger the employer, the more likely the employer is to mandate Center of Excellence use, with only 14% of employers with between 200 and 999 employees requiring Center of Excellence utilization for prescribed conditions, while 27% of employers with between 1,000 and 4,999 employees and 31% of employers with 5,000 or more employees did so. 

As for additional positive feedback and carrots to incentivize employees to take advantage of these programs beyond reduced costs, positive patient outcomes, and low readmission rates, a large number of employers also cover travel expenses that employees incur when visiting Centers of Excellence.

In 2024, 24% of employers with between 200 and 999 employees covered travel expenses for employees to seek care at Centers of Excellence, 25% of employers with between 1,000 and 4,999 covered these employee travel expenses, and 46% of employers with 5,000 or more employees covered them.

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‍Mployer’s Take

‍It is entirely possible that the dip in Center of Excellence utilization among the largest employers in the US last year was anomalous and not indicative of these programs falling out of favor at the top of America’s most influential private organizations. 

It’s also possible that covering travel expenses became increasingly expensive for employers as covered procedures evolved from relatively fast procedures with relatively short on-site recovery times, like hip and knee replacements, to more invasive procedures with longer recovery times, like organ transplants, and treatments that themselves are more complex and long-term, like certain cancer treatment regimens. 

Whatever the case may be, it must be somewhat troubling for Centers of Excellence advocates to see the most pronounced reduction in utilization among the largest employers, however, given that Center of Excellence programs seem most aptly suited to the biggest organizations who can negotiate low fees, provide steady streams of patients from many corners of the country, and take advantage of these potential cost savings. 

That said, because Centers for Excellence are such a relatively recent addition to the employer cost-saving repertoire, there is still a process of trial and error that is happening which may result in some fluctuation in participation percentages but will hopefully ultimately lead to greater efficiencies and a more streamlined menu of services that best work in Centers of Excellence models.

In the meantime, as those issues and efficiencies get sorted out, Centers of Excellence are likely to remain a prominent component of health benefits service delivery for the foreseeable future, and we’ll keep an eye on these utilization trend lines as they continue to take shape and organizations figure out how to best optimize these programs.