Partnerships between public and private purchasers may be the next hot trend in healthcare, based on a recent study by the Chicago-based Midwest Business Group on Health.
The MBGH concluded that alliances between public purchasers of healthcare (i.e., coverage for state employees) and private-sector purchasers and purchasing coalitions are "feasible." But the study's authors and other industry observers acknowledge that groups pursuing them face some serious obstacles.
"Partnerships are developing in at least one-third of the states, and at a number of levels: from simple collaborations between local employers and the public school system, to complex ventures between large employers and even larger public purchasers, such as Medicaid and Medicare," says the study, which was underwritten by the U.S. Agency for Health Care Policy and Research and G.D. Searle Corp.
What are the potential benefits of such partnerships? Easier access to information on the performance of health plans, faster development of those sometimes elusive community health information systems, and reduced costs and cost shifting.
"I think everyone sees the advantages of having greater market share through these arrangements," says James Mortimer, the MBGH's president.
Others also see advantages. "With costs the way they are, the idea of broadening the pool as much as possible has its appeal," says Robert Moffitt, an assistant secretary of HHS during the Reagan administration and now deputy director of domestic policies at the Heritage Foundation, a Washington-based conservative think tank. "You can really start to change the structure of the market." Moffitt believes coalitions are a logical response to the current healthcare insurance market, which he believes is "distorted" because of excessive government regulation.
The MBGH cited six case studies for its report. One of the more successful ones is in Racine, Wis. In the late 1980s, three local companies-S.C. Johnson Wax, Modine Manufacturing and Golden Books Family Entertainment-teamed with Racine County, the city of Racine and the Racine Unified School District to create a for-profit organization called MEI. Each of the companies and agencies can design its own benefits package, but MEI handles claims processing, information systems and network management services.
While Racine's large employers had been battered by double-digit increases in healthcare costs during the 1980s, MEI helped cut the hospital admission rate among its members' employees by 5% per year, and annual increases in admission costs were held to a 0.5% per year. On the outpatient end, visits per 1,000 employees are increasing 2.8% per year, while outpatient costs are rising only 2% per year.
MEI is also able to keep tabs on readmissions, complications and patient deaths.
As for the potential to improve the health of the community, the MBGH cited a pilot project in Flint, Mich., and Anderson, Ind., between General Motors Corp. and the company's old nemesis, the United Auto Workers. The automaker and the union are working together to develop and establish consistent practice patterns in Flint and Anderson, and eventually restructure healthcare delivery in those towns based on the data gathered. The partners are also disseminating information about healthy lifestyles to the communities in the hope of encouraging behavior modification. HCFA has agreed to cooperate in the experiment by sharing Medicaid and Medicare data for the communities.
Such work, the MBGH's Mortimer notes, is vital for encouraging public-private coalitions on a nationwide basis, particularly when it comes to agreeing on benefits and premiums.
"Risk-adjustment science is still not competent enough to fairly estimate actuarial costs of a defined population (such as an entire town) because the folks covered under a Medicaid contract don't measure up to an employee population," he says.
Still, the potential for public-private interaction can be limited by a variety of factors. In studying an alliance between the Massachusetts Healthcare Purchaser Group and several government purchasers, the study observed that "Purchasers struggle . . . with determining the relative importance of different measures. Because they are responsible for different populations with different kinds of needs, it can be difficult for the public and private purchasers to agree on their priorities, which complicates the goal of speaking with one voice to the insurers."
The study even gave an example of a city where a public-private coalition is not likely: Madison, Wis. Although it's home to the Alliance, a private purchasing coalition with more than 100 large employers and 500 small businesses, and the Employees Trust Fund, a purchaser for the University of Wisconsin and other government agencies in the state capital, they are unlikely partners. The study cited the vast difference in benefits packages offered by the Alliance and the state and their geographical breadth (11 counties for the Alliance, the entire state for the Employees Trust Fund). Such differences contribute to what the study calls "institutional inertia," where each purchaser believes the other is too set in its ways "to recognize the merits or appropriateness of a different strategy."
Indeed, operational differences between the public and private sectors pose the biggest barrier to partnerships.
"Even though the government has a lot of purchasing power, it's pretty hard to change things within the government, making such cooperatives hard to pull off, even though it makes sense," says J.B. Silvers, director of the health systems management center at Case Western Reserve University in Cleveland.
Geography can also jinx such marriages. The study concluded that very large population bases, such as New York and Los Angeles, do not present fertile ground for such partnerships. "The lack of activity may be due to the complexity of markets or the fact that no organization is large and influential enough to pull the others together," according to the study. "The key factors of clout, trust and strong relationships seem to converge in small and medium-size markets."
The MBGH offered some advice for purchasers willing to band together:
Focus on needs, not wants. Pursue complementary needs together; pursue unique ones separately.
Study other communities as a starting point but also conduct an assessment for your own market.
Consider using an outside facilitator to bring diverse partners together.
Allocate resources based on where agendas and goals overlap.
"The ability to build trust is clearly one of the keys to an effective collaboration," the study says.