For Patrick Leonard, CFO at Pelago, rising healthcare costs call for a closer look at the value of every benefit investment. Employers need to know whether a benefit improves outcomes and reduces total cost of care.
We sat down with Patrick to discuss what CFOs look for in healthcare investments, where employers may be spending inefficiently, and how benefits leaders can build a stronger business case for behavioral health.
Q.) What separates a benefit that’s simply popular from one that’s actually creating business value?
A.) The easiest way to draw that line is to ask where the evidence comes from.
Popular benefits can generate strong utilization numbers and engagement data. Benefits that create business value should also show up in claims data. The test I would use is: Can this vendor show me a reduction in total cost of care? Not just utilization of their product or improvements within their own platform, but an actual reduction in what the health plan is paying.
If they can, you have evidence that the benefit is creating value. If they can’t, part of what you’re buying is hope.
That’s why independent validation matters so much. An independent actuarial analysis conducted by Aon found $11,829 in annual medical cost savings per Pelago participant. For a CFO, that’s meaningful evidence of a benefit’s impact on the broader cost structure of the business.
Q.) Why should healthcare benefits be a CFO conversation instead of just an HR conversation?
A.) It’s easy to define the CFO’s job purely by the numbers, but the role serves multiple needs. You’re responsible for the overall financial health of the business and making sure capital is being deployed effectively. Where are we spending our money, and what are we getting for it?
Healthcare benefits sit directly at that intersection. There’s the financial side of the equation and the value you’re providing to your people.
A well-designed benefit can serve both needs simultaneously. You can provide something employees genuinely need and value while also lowering costs for the business.
This is what makes healthcare a capital allocation conversation. And, when there is independently validated evidence showing that an investment can reduce total cost of care, a CFO can evaluate it using the same financial discipline we would apply to other investments across the business.
Q.) How does having a strong behavioral health benefit affect other healthcare spend categories?
A.) One of the most important things to understand is that behavioral health does not exist in isolation from the rest of healthcare spend.
With substance use disorders specifically, you see comorbidities across many of the categories employers already think about as major cost drivers, including musculoskeletal conditions, cardiovascular disease and diabetes.
I think about it as fire and smoke. You can spend a lot of money addressing the smoke, but if you don’t address the underlying fire, you haven’t solved the core problem.
We’ve seen this reflected in independent claims analysis of Pelago participants, which found significant reductions in medical costs associated with musculoskeletal conditions, cardiovascular disease and diabetes.
For a CFO, that broader impact is important because ultimately you’re managing the total cost of care.
"You can spend a lot of money addressing the smoke, but if you don’t address the underlying fire, you haven’t solved the core problem."
Q.) Looking ahead five years, what do you think will define the organizations that are best at managing healthcare costs?
A.) I think there are three broad things.
The first is data and analytics. Healthcare is already one of the largest areas of spend on the P&L. Organizations that really understand what they are spending and what they are getting for that spend will have a much easier path toward offering rich benefits without allowing costs to become unsustainable.
The second is accountability from vendors. I think employers are going to increasingly ask vendors to demonstrate that they believe in their own results by putting fees at risk. If I’m evaluating two solutions, the willingness of a provider to tie its economics to measurable improvement tells me something important.
The third is acuity-matched care. Giving everybody the same level of care regardless of what they actually need is inherently inefficient. Organizations that match care to each person’s needs can direct clinical resources toward those who need them most while providing effective, lower-intensity support for people with less complex needs.
Those three things work together. Better data tells you what is working. Financial accountability aligns incentives around that value. Acuity matching helps you deploy healthcare resources more efficiently.
Q.) If you could give every benefits leader one piece of advice before they walked into a budget meeting with their CFO, what would it be?
A.) Frame the conversation as a capital allocation decision.
A CFO will consider everything you have to say about employee experience and the value employees get from a benefit. If you’re not quantifying the financial side of the investment, your CFO is probably doing the mental math.
So own that part of the conversation.
Start with the baseline. What is our total healthcare cost per employee? Where are our highest-cost conditions? What is happening to our medical cost trend? Then show how the investment you’re proposing affects those numbers.
If adding a benefit increases one line of spend and produces measurable savings across several of your largest medical cost categories, show that connection clearly. Once you’ve established the hard numbers, you can layer in things like productivity, absenteeism and employee experience.
The strongest conversation you can have with a CFO starts with the return that investment can generate and the evidence supporting it. When you can clearly connect better employee care to stronger financial outcomes, you have a compelling business case.
"If you’re not quantifying the financial side of the investment, your CFO is probably doing that calculation in their head anyway."
Q.) You’ve talked a lot about applying greater financial rigor to healthcare. Why do you think Pelago is well positioned for this moment?
A.) Healthcare is one of the largest areas of spend for employers, and costs continue to rise. To me, that means there is an enormous opportunity to rethink how that money is being spent.
What excites me about Pelago is that we’re approaching that problem from first principles. We’re asking what level of care someone actually needs, how we can deliver that care efficiently, and where clinicians need to be involved.
That acuity-matched approach has already demonstrated significant savings in substance use care, and we’re now extending it across mental healthcare and behavioral addictions.
My job as CFO is to make sure our financial foundation is as strong as the clinical evidence we’re producing. I want employers to understand the value of investing in care that better matches people’s needs. When better care also leads to lower total healthcare costs, the business case becomes incredibly compelling.
