Toyota, whose health care costs have doubled in the past five years, will be the first of the large auto manufacturers operating in the U.S. to address health care costs by building a full-service health care center at one of its sites. In doing so, Toyota is applying a popular car manufacturing strategy to its employees’ health in hopes of producing high-quality, cost-effective health care.
"The way we do things at Toyota in general is, the way we improve cost is to improve quality," says spokesman Daniel Sieger. "We’re looking at health care the same way."
The on-site health care center, which will be operated by CHD Meridian Health Care, will be open to Toyota’s 2,000 employees working at the plant and their dependents, as well as the 2,100 employees of companies manufacturing parts for Toyota Tundra pickups produced at the 1.5 million-square-foot, $1.28 billion facility.
Reflecting an integrated health care supply chain of sorts, the health care center will bundle a number of health services normally performed by unrelated specialists at different locations. The center, which will open in January, will include preventive and primary health care services, family practitioners, internists, pediatricians, dentists, optometrists, physical therapy, and radiology, pharmacy and laboratory services. The center will include the kind of occupational health services provided by employers at most manufacturing plants that are meant to deal solely with work-related injuries.
As Toyota has expanded its production capacity in the United States--the San Antonio plant will be its 13th--its health care costs have climbed. Toyota now pays about $11,000 annually to provide health care for each employee, double what it paid five years ago, Sieger says.
Though Toyota surpassed Ford as the second-largest auto manufacturer in the world behind GM, the company does not face the same kind of crushing health care expenditures as Detroit’s Big Three automakers.
Whereas health care cost GM $1,525 per vehicle in 2004, Toyota spent just $201, according to management consulting firm A.T. Kearney. A large part of that cost may have to do with the burden of providing health care to retirees. Health care costs rise exponentially as people age. Toyota has only 250 retirees in North America.
According to representatives from Chrysler, GM and Ford, those companies do not have comprehensive health clinics on factory sites.
Despite taking cues from Toyota’s business plan in the past, the Big Three have resisted building comprehensive medical centers at their plants, according to R. Dixon Thayer, CEO of I-trax, which owns CHD Meridian Healthcare.
Thayer, a former Ford executive, says that despite some union support at other manufacturing companies, including Goodyear and Nissan, Detroit’s Big Three have not yet seen the value in on-site clinics as a way to manage health care costs.
"The Big Three see on-site health care as occupational health," Thayer says, "so [for them] it is a risk management and OSHA issue."
He says it takes "some enlightened HR and benefits people" to see that comprehensive on-site health centers can help manage and prevent chronic diseases, which represent a disproportionately large chunk of health care spending.
Thayer says cost savings for companies come from employees using health care when they need it without waiting to take time off and returning to work too quickly. Lower co-pays and other financial incentives will increase the use of the facility and increase the use of drugs for chronic illnesses, ultimately reducing expensive hospitalizations. Medical care at the clinic will be more in-depth. Doctors will spend 20 minutes with patients.
Companies such as Pitney Bowes, Compuware and Perdue have on-site health clinics, and the benefits often depend on employee demographics. It helps if the clinic is convenient not just for employees, but for their dependents as well. This means employees would have to live nearby or where it’s hard to access health care specialists, says Joe Fortuna, medical director for industry association Automotive Industry Action Group.
Companies in other industries have used the model of on-site health care, but with Toyota now trying it, Fortuna hopes the company can bring its expertise in improving supply-chain quality to improving health care quality.
"We don’t have an integrated supply chain for health care" in the U.S., Fortuna says. "If they use that mechanism and the quality is good, then the question becomes: Can they do it on a cost-effective basis?"
Toyota currently has no plans to expand health care clinics to other plants.
"This is kind of a test run," Sieger says. "We will see how it works."