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.