Skip to main content
Subscribe
  • Sign Up Free
  • Login
  • Subscribe
  • News
    • Current News
    • Providers
    • Insurance
    • Government
    • Finance
    • Technology
    • Safety & Quality
    • Digital Health
    • Transformation
    • ESG
    • People
    • Regional News
    • Digital Edition (Web Version)
    • Patients
    • Operations
    • Care Delivery
    • Payment
    • Midwest
    • Northeast
    • South
    • West
  • Opinion
    • Bold Moves
    • Breaking Bias
    • Commentaries
    • Letters
    • Vital Signs Blog
    • From the Editor
  • Events & Awards
    • Awards
    • Conferences
    • Galas
    • Virtual Briefings
    • Webinars
    • Nominate/Eligibility
    • 100 Most Influential People
    • 50 Most Influential Clinical Executives
    • Best Places to Work in Healthcare
    • Excellence in Governance
    • Health Care Hall of Fame
    • Healthcare Marketing Impact Awards
    • Top 25 Emerging Leaders
    • Top Innovators
    • Diversity in Healthcare
      • - Luminaries
      • - Top 25 Diversity Leaders
      • - Leaders to Watch
    • Women in Healthcare
      • - Luminaries
      • - Top 25 Women Leaders
      • - Women to Watch
    • Digital Health Transformation Summit
    • ESG: The Implementation Imperative Summit
    • Leadership Symposium
    • Social Determinants of Health Symposium
    • Women Leaders in Healthcare Conference
    • Best Places to Work Awards Gala
    • Health Care Hall of Fame Gala
    • Top 25 Diversity Leaders Gala
    • Top 25 Women Leaders Gala
    • - Hospital of the Future
    • - Value Based Care
    • - Hospital at Home
    • - Workplace of the Future
    • - Digital Health
    • - Future of Staffing
    • - Hospital of the Future (Fall)
  • Multimedia
    • Podcast - Beyond the Byline
    • Sponsored Podcast - Healthcare Insider
    • Video Series - The Check Up
    • Sponsored Video Series - One on One
  • Data Center
    • Data Center Home
    • Hospital Financials
    • Staffing & Compensation
    • Quality & Safety
    • Mergers & Acquisitions
    • Data Archive
    • Resource Guide: By the Numbers
    • Surveys
    • Data Points
  • Newsletters
  • MORE+
    • Contact Us
    • Advertise
    • Media Kit
    • Jobs
    • People on the Move
    • Reprints & Licensing
MENU
Breadcrumb
  1. Home
  2. Finance
April 04, 2020 01:00 AM

Employer group purchasing of healthcare attracting interest of more hospitals

Harris Meyer
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Jennifer Fairman

    “I’ll get questions, and we’ll have to show our data on Banner’s quality of care. But what we’re currently paying is not reasonable or fair.”

    Jennifer Fairman
    Benefits manager
    Larimer County, Colo.

    Jennifer Fairman, benefits manager of Larimer County, Colo., discovered last spring that her self-insured county’s health plan was paying UCHealth’s Poudre Valley Hospital more than 400% of Medicare rates for inpatient and outpatient services.

    A RAND Corp. study of hospital prices across the country also showed the county was paying Banner Fort Collins Medical Center, the other hospital in Fort Collins, 330% of Medicare rates. But most county employees were using the pricier UCHealth facility because they assumed the quality of care was better.

    That’s when Fairman decided that the county plan’s third-party administrator was failing, and she needed to take a radically different approach to negotiating healthcare contracts for the plan’s 3,500 covered lives to reduce costs.

    Now Larimer County, along with the Colorado state employees’ health plan and other self-insured public and private employer health plans throughout the state, is working with the new Colorado Purchasing Alliance to collectively negotiate better deals with providers. The statewide alliance represents employers with 80,000 employees and dependents.

    Colorado employers are part of a growing movement of self-insured employers that have joined purchasing groups to negotiate directly with providers. They want their employees to use hospitals and physicians that accept lower negotiated rates and are willing to meet targets on quality and patient outcomes. The goal is to develop a sustainable long-term partnership on costs and quality.

    Early adopters like the Pacific Business Group on Health, the Alliance in Wisconsin, and the Savannah Business Group say participating employers and employees have seen substantial cost savings along with improved patient outcomes and satisfaction from their collective contracts.

    Some states like Colorado and Connecticut are seeking to boost purchasers’ bargaining leverage by bringing public and private employers together in these groups.

    A major driver of these efforts is that employers recognize they can’t continue to load their employees with higher deductibles and coinsurance because those high cost-sharing levels are becoming unaffordable.

    Even with the cost-shifting, business spending on employer-sponsored private health plans rose 7.2% in 2018, up from 5.5% in 2017, according to the CMS’ latest report on national health expenditures.

    “Our employers are focused on conditions that aren’t suitable for travel. It’s the same concept of identifying providers based on shared quality standards.”

    Elizabeth Mitchell
    CEO
    Pacific Business Group on Health

    Going regional

    One group purchasing pacesetter is preparing to expand its efforts due to growing employer interest. The Pacific Business Group on Health, based in San Francisco, is planning to establish its first regional centers of excellence programs in at least three markets around the country, building on its acclaimed national Employers Centers of Excellence Network.

    PBGH will contract with providers in local markets that meet its quality and outcomes standards for bundled case rates on services including oncology and maternity care, coronary bypass surgery and joint replacements, said Elizabeth Mitchell, the group’s CEO. Unlike in PBGH’s national network, plan members wouldn’t have to travel to a hospital that could be hundreds of miles away.

    “Many employers would love to see all of these options available locally in their markets,” Mitchell said. “Our employers are focused on conditions that aren’t suitable for travel. It’s the same concept of identifying providers based on shared quality standards.”

    A National Business Group on Health survey of large self-funded employers last year found that many companies planned to step up direct-contracting initiatives this year, with 26% expanding centers of excellence, 17% implementing high-performance networks, and 6% establishing direct primary-care programs.

    It’s unclear, however, whether these more aggressive direct-contracting moves will be set back by the coronavirus pandemic, which is expected to hit providers hard financially. While some observers say these initiatives may have to be delayed, others argue that lowering healthcare costs will be an important part of reviving the staggered U.S. economy when the pandemic is over.

    “This is absolutely the right time to negotiate these deals because of the broad economic impact all employers might feel,” said Margo Karsten, western region president for Banner Health, which is in talks with the Colorado Purchasing Alliance.

    Achieving regional excellence

    Quality measures used by the Pacific Business Group on Health in its new regional center of excellence program

    • Annual minimum case volumes    
    • Requirement that a minimum of two surgeons meet minimum case volumes
    • Ability to offer a prospective episode-based bundled rate
    • Willingness to share the following data for facility level and de-identified physician data:
      • Patient-satisfaction scores
      • 90-day readmission rates
      • Postoperative infection rates
      • Patient functional status scores preoperatively, and at 6 and 12 months
      • Others related to specific surgery types
    • Willingness to provide documentation and complete descriptions of items such as:
      • Existing satisfaction scores
      • Program-wide criteria for determining whether surgery is medically necessary
      • Formal shared-decisionmaking program
      • Timely participation in a multi-institutional registry
    • Willingness to work collaboratively toward best practices with all involved parties

    Source: Pacific Business Group on Health

    Medicare as a benchmark

    Starting next year, Larimer County’s Fairman plans to steer employees, using reduced cost-sharing, to lower-priced hospitals and physicians that can demonstrate the quality of their care. The Colorado Purchasing Alliance, which is negotiating the deal, wants providers to agree to prices that are at most 50% higher than Medicare rates, said Robert Smith, executive director of the Colorado Business Group on Health, which organized the state-licensed purchasing cooperative.

    “We’d like to define a multiyear relationship by which employers and health systems could work on the Quadruple Aim,” Smith said. “We don’t just want to negotiate a price. But how high above the break-even point do hospitals need to replace facilities and care for our communities?”

    Fairman said Banner has been receptive, while local rival UCHealth has not. She hopes to have a contract in place with Banner in 2021 to deliver oncology, cardiology, maternity and imaging services. Then she’d change the county’s plan design to steer patients to Banner.

    “It will definitely raise eyebrows among our plan members,” she said. “I’ll get questions, and we’ll have to show our data on Banner’s quality of care. But what we’re currently paying is not reasonable or fair.”

    Banner’s Karsten said her system is open to working out a deal. “I appreciate the partnership with employers in lowering their cost of care,” she said, adding that her team is offering Larimer County “creative models to see what works best in their market for their employee group.”

    UCHealth said it’s not open to negotiating based on a percentage of Medicare rates but is willing to work with employers to offer cost-saving arrangements. “If Larimer County would like to discuss options to reduce their costs while improving care for their employees, we’re certainly open to having those discussions,” spokesman Dan Weaver said.

    One reason why self-funded employers like Larimer County are working with purchasing cooperatives is their growing dissatisfaction with the efforts of insurers and third-party administrators to control costs and ensure quality. They also see insurers blocking employers from working directly with providers because it’s not in the insurers’ financial interests. A big complaint has been insurers’ unwillingness to share data on prices and utilization.

    “Insurers want to be left alone in spite of the fact that employers have to take a more active role if they are going to advocate for their own employees,” said Michael Thompson, CEO of the National Alliance of Healthcare Purchaser Coalitions. “This tension will only get greater as the market evolves to more focus on steering members to higher-value providers.”

    An attorney who works with self-insured employers said she’s seen insurers, acting as third-party administrators, preventing employers from directly contracting with providers that offer a high-quality service line like cardiology. One reason is they want to maintain broad networks and keep providers happy. Third-party administrators often won’t let a self-funded employer plan reduce cost sharing to steer members to a particular provider.

    “You have to get the insurers to play ball with you, and they don’t really want to play ball,” said the attorney, who didn’t want to be named because she has insurance clients.

    A spokeswoman for America’s Health Insurance Plans debunked the effectiveness of direct-contracting deals, arguing they don’t protect patients’ affordable access to quality care. “Those patient protections are not in place with direct-contracting arrangements,” said Kristine Grow, AHIP’s senior vice president for communications.

    Despite such arguments, purchasing group leaders report growing employer interest in direct contracting.

    The Alliance, a healthcare purchasing cooperative, has negotiated standard contracts with providers for 250 self-funded private employers in Wisconsin and northern Illinois. It aims for prices between 175% and 225% of Medicare rates. It also works with the employers and providers to establish value-based models including bundled-payment deals for particular episodes of care.

    Cheryl DeMars, the Alliance’s CEO, said more of her member companies are using their health plan’s cost-sharing design to steer employees to the lower-cost, quality providers that sign contracts with the Alliance. That’s something many companies were previously reluctant to do. Their success with this strategy in squeezing healthcare cost growth has persuaded other employers to try it.

    She argues that statewide purchasing efforts are more effective than local or individual employer initiatives. “If the buy side of market is united, you stand a better chance of counterbalancing the strength of providers,” she said. “You also avoid the divide-and-conquer strategy that sometimes plays out in markets.”

    Many hospital systems strongly resist negotiating prices based on a percentage of Medicare rates, arguing that a value-based strategy that addresses total care costs is more effective.

    That battle is playing out in four counties in southwest Colorado. There, the Local First Foundation is working with the Peak Health Alliance to negotiate lower rates with area providers for a health plan that would serve about 300 independent local businesses.

    Monique DiGiorgio, executive director of the foundation, said she and Peak recently were in the middle of discussing fee schedules with local hospitals, including Centura Health-owned Mercy Regional Medical Center in Durango, when Centura suddenly announced it would not cooperate with the effort.

    “Centura said they weren’t going to give a fee schedule to Peak,” DiGiorgio said. “They said they didn’t want a third party in the middle of the discussion. They didn’t give us any warning.”

    Centura CEO Peter Banko said he agrees that healthcare costs are too high but rejects negotiating a hospital fee schedule based on a percentage of Medicare. He said he’s willing to work with Local First and the affiliated Southwest Health Alliance but not with Peak in that market.

    Since then, DiGiorgio said Centura has agreed to show its fee schedule to an actuarial firm hired by the Southwest Health Alliance, which will allow the negotiations to move forward. “If it’s just a negotiation of hospital pricing, we’re not interested,” Banko said. “That hasn’t delivered savings for individuals and families. If it’s about total costs of care, we’re all in and we’re willing to talk.”

    He said Centura, on its own, recently reduced the cost of hospital services at Mercy Regional by 20%.

    Not all Colorado providers have taken that position. The Colorado Business Group’s Smith said he’s begun talks with three health systems serving different parts of the state that are receptive to negotiating prices as a percentage of Medicare rates and establishing bundled prices for episodes of care. In addition, he’s talking to a large independent physician association about a deal. He hopes to sign agreements by June.

    Scrutinizing hospital prices
    Embracing value-based benefit designs

    Employers also need to change their behavior, Smith argued. They must embrace a long-term shift to value-based benefit designs that steer plan members to high-value providers and services.

    Joseph Fifer, CEO of the Healthcare Financial Management Association, said direct-contracting negotiations can be valuable if they consider all the factors that drive costs, including price, volume and outcomes. And he wants to see health systems accelerate their shift to value-based payment.

    While Smith agrees that price is just one part of the equation, he sees it as a key part that hospitals don’t want to negotiate with business groups. “They would prefer to work individually with employers,” he said. “I suspect they really want a fragmented purchasing market.”

    Letter
    to the
    Editor

    Send us a letter

    Have an opinion about this story? Click here to submit a Letter to the Editor, and we may publish it in print.

    Recommended for You
    sutter_i.jpg
    Sutter Health plots ambitious California expansion
    Shannon Striebich-01_i.jpg
    Trinity Health president speaks on financial problems with new operational solutions
    Most Popular
    1
    More healthcare organizations at risk of credit default, Moody's says
    2
    Centene fills out senior executive team with new president, COO
    3
    SCAN, CareOregon plan to merge into the HealthRight Group
    4
    Blue Cross Blue Shield of Michigan unveils big push that lets physicians take on risk, reap rewards
    5
    Bright Health weighs reverse stock split as delisting looms
    Sponsored Content
    Daily Finance Newsletter: Sign up to receive daily news and data that has a direct impact on the business and financing of healthcare.
    Get Newsletters

    Sign up for enewsletters and alerts to receive breaking news and in-depth coverage of healthcare events and trends, as they happen, right to your inbox.

    Subscribe Today
    MH Magazine Cover

    MH magazine offers content that sheds light on healthcare leaders’ complex choices and touch points—from strategy, governance, leadership development and finance to operations, clinical care, and marketing.

    Subscribe
    Connect with Us
    • LinkedIn
    • Twitter
    • Facebook
    • RSS

    Our Mission

    Modern Healthcare empowers industry leaders to succeed by providing unbiased reporting of the news, insights, analysis and data.

    Contact Us

    (877) 812-1581

    Email us

     

    Resources
    • Contact Us
    • Advertise with Us
    • Ad Choices Ad Choices
    • Sitemap
    Editorial Dept
    • Submission Guidelines
    • Code of Ethics
    • Awards
    • About Us
    Legal
    • Terms and Conditions
    • Privacy Policy
    • Privacy Request
    Modern Healthcare
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • News
      • Current News
      • Providers
      • Insurance
      • Government
      • Finance
      • Technology
      • Safety & Quality
      • Digital Health
      • Transformation
        • Patients
        • Operations
        • Care Delivery
        • Payment
      • ESG
      • People
      • Regional News
        • Midwest
        • Northeast
        • South
        • West
      • Digital Edition (Web Version)
    • Opinion
      • Bold Moves
      • Breaking Bias
      • Commentaries
      • Letters
      • Vital Signs Blog
      • From the Editor
    • Events & Awards
      • Awards
        • Nominate/Eligibility
        • 100 Most Influential People
        • 50 Most Influential Clinical Executives
        • Best Places to Work in Healthcare
        • Excellence in Governance
        • Health Care Hall of Fame
        • Healthcare Marketing Impact Awards
        • Top 25 Emerging Leaders
        • Top Innovators
        • Diversity in Healthcare
          • - Luminaries
          • - Top 25 Diversity Leaders
          • - Leaders to Watch
        • Women in Healthcare
          • - Luminaries
          • - Top 25 Women Leaders
          • - Women to Watch
      • Conferences
        • Digital Health Transformation Summit
        • ESG: The Implementation Imperative Summit
        • Leadership Symposium
        • Social Determinants of Health Symposium
        • Women Leaders in Healthcare Conference
      • Galas
        • Best Places to Work Awards Gala
        • Health Care Hall of Fame Gala
        • Top 25 Diversity Leaders Gala
        • Top 25 Women Leaders Gala
      • Virtual Briefings
        • - Hospital of the Future
        • - Value Based Care
        • - Hospital at Home
        • - Workplace of the Future
        • - Digital Health
        • - Future of Staffing
        • - Hospital of the Future (Fall)
      • Webinars
    • Multimedia
      • Podcast - Beyond the Byline
      • Sponsored Podcast - Healthcare Insider
      • Video Series - The Check Up
      • Sponsored Video Series - One on One
    • Data Center
      • Data Center Home
      • Hospital Financials
      • Staffing & Compensation
      • Quality & Safety
      • Mergers & Acquisitions
      • Data Archive
      • Resource Guide: By the Numbers
      • Surveys
      • Data Points
    • Newsletters
    • MORE+
      • Contact Us
      • Advertise
      • Media Kit
      • Jobs
      • People on the Move
      • Reprints & Licensing