Several big HMOs recently have announced acquisitions and consolidations as they strive to serve large multistate employers. These costly moves to snag national accounts demonstrate the power of big purchasers.
But growing HMOs and other provider groups would do well to listen closely when purchasers describe how they shop for HMOs. Employers say they appreciate the central coordination and other uniform services a national healthcare company can provide. However, when companies such as giant GTE Corp. weigh health plans, "central coordination is not the focus, though it's very helpful.*.*.*.*Where the rubber meets the road is the local leadership, the local medical director, the local staff," said Bruce Bradley, GTE's corporate manager of managed care in Waltham, Mass.
"Most large employers are tending toward local selection of HMOs," confirms Michael Sydlaske, a principal at William M. Mercer, an employee benefit consulting firm based in New York.
In the most recent example of an HMO expanding to serve national accounts, Woodland Hills, Calif.-based WellPoint Health Networks announced last month that it will spend $380 million to buy a subsidiary of Massachusetts Mutual Life Insurance Co., giving WellPoint a presence, as well as a range of products, in every state.
The acquisition "focuses on multistate employers that want a single source of healthcare solutions," WellPoint said in a release.
Last year Minneapolis-based United HealthCare Corp., which operated primarily in the Midwest, paid $1.7 billion for MetraHealth Cos. in order to establish a nationwide presence. MetraHealth's strong national account activity was a prime drawing card for United.
The buzzword that HMOs use in approaching big employers is that they offer a "seamless" national program. Cigna HealthCare says in its promotional materials: "We have spent a billion dollars getting ready for it."
NYLCare, New York Life Insurance Co.'s consolidated healthcare business, also touts a "seamless" program to serve national accounts.
Even Kaiser Permanente has been touting its "seamless" National Advantage program, rolled out last spring, as giving "health benefit managers a single point of contact for purchase, enrollment, billing and renewals for the first time."
"It's a major step forward for Kaiser. It wasn't very seamless before," and employers appreciate that, said Robin Weiner, a consultant with Foster Higgins in Los Angeles. While Kaiser had a dozen regions across the country, it didn't have a truly national presence.
In another attempt to attract multistate employers, nine Blue Cross and Blue Shield plans in a project called National Account Consortium have developed uniform medical standards to guide provider clinical practices and reimbursement (Jan. 15, p. 12).
But do employers primarily want that "single source" or a "seamless" national HMO to serve their employees in multiple sites across the country?
"Absolutely not," Bradley said.
"We want to have the best local delivery systems," he said. GTE has found that of the 136 HMOs it contracts with across the country, the best 21-in terms of quality and efficiency-are managed locally, he said.
Linda Freeman, a consultant with Towers Perrin who works with Los Angeles-based First Interstate Bank, says that besides Kaiser the bank uses mainly locally based HMOs in its 12 operating regions.
"We want a mature network. We don't want a lot of physician turnover, which happens when a network is immature," Freeman said. Big HMOs forging into new territories have to grow those networks.
When Bradley considers GTE's top local plans, "no big national company in my view comes close," although he singles out Kaiser for setting "standard expectations" for all its plans.
NYLCare, among other HMOs, has been listening. In consolidating its $2.5 billion healthcare business, each of its 11 regions still will be "fully responsible for marketing and managing the local delivery" of healthcare, the company said.
"Unlike some of our competitors, we have always believed in the value of strong local plans empowered to respond to local needs and opportunities with a quick decisionmaking process," said Joseph Lynaugh, NYLCare's president and chief executive officer.
Chris Coulter, M.D., chief operating officer at Ultralink, a Costa Mesa, Calif.-based network manager, explained that employers' goals in structuring national healthcare programs have evolved.
In the first national effort by a major employer to control healthcare costs through managed care, Allied Signal in 1988 contracted with Cigna for all Allied employees' healthcare. The problem with that model is it offered no choice, Coulter said. Allied changed course and now offers other HMOs besides Cigna plans in a "best local" strategy, Coulter said.
Today, companies such as Xerox Corp. typify what most big employers are doing, Coulter said. The company offers 200 HMOs nationwide-several in each of its regions-and lets employees choose, based on information about cost and quality of service. Employees pay some of the cost for higher-priced plans.
Ultralink is one of Xerox's six network managers, providing centralized administration. But Coulter said such a system may not be desirable for all employers. "There's still some cost associated with offering a whole lot of HMOs," he said.
Walking a line between the Allied Signal and Xerox models are HMOs that don't want to be a company's exclusive HMO. They seek to make it easy and attractive for national employers to offer them, Coulter said.
If those national HMOs beat out local plans in cost and quality, employers seeking administrative ease eventually may choose them, and a shakeout may follow.
But now no single national HMO is capable of being a big employer's exclusive or "single-source" plan, Coulter said. "They're still putting together their networks."
United probably "comes closest" to national coverage, but the company "has been an extremely decentralized HMO and has had a very minimal national account up to now," Coulter said.
United will have its hands full trying to overlay a national account program on "25 very different health plans," he said.