Providers, businesses negotiate rates and shop those rates to insurers

Summit County, Colo., is a picturesque mountain community nestled high in the Colorado Rockies that roughly 30,000 people call home. It’s a charming area well-loved for its extended winters and four ski areas.

Not so charming is the cost of healthcare in the county, where a knee replacement costs 89% more on average than in the Denver metro area about 70 miles east. If a bad spill on a ski hill necessitates a craniotomy, a patient will pay 163% more on average in Summit County compared with the Denver area. That’s according to a report compiled by the firm Leif Associates using 2015 and 2016 claims data. In turn, health insurance premiums are also among the country’s highest.

Not surprisingly, the county’s main health system and only hospital provider, Centura Health, is taking a lot of heat from locals. Its CEO, Peter Banko, doesn’t argue. “I cop to the charge,” he said. “We’re not affordable and we’re not transparent.” 

A determined collective of small and large businesses and individuals calling itself Peak Health Alliance has launched a unique model it hopes has the right stuff to turn the unwelcome trend around.

The group, which represents roughly 6,000 people, harnessed its leverage to negotiate a package of discounted rates for medical services directly with Centura. The rates apply not only to Summit County’s sole hospital, Centura’s St. Anthony Summit Medical Center, but to all Centura locations. Peak plans to announce contracts with other providers, too, including Colorado Children’s Hospital, behavioral health providers, reproductive health providers and other specialists.

Here’s where it gets interesting. Peak is now sending those contracted rates to health insurers to see who can craft the best plans. The hope is that Peak will get lower premiums by removing the cost of negotiating rates and guaranteeing a sizable pool of covered lives. They want the plans, which will be open to individuals who live in the county or businesses based there, to start Jan. 1, 2020. 

“They’re doing it backwards,” said Cheryl Larson, CEO of the Midwest Business Group on Health, a coalition of 125 companies, “which is awesome because they can get rid of the waste, the administrative fees. However, the challenge they have is that they now have to get the health plans to agree to those rates.” 

Tamara Drangstveit, a member of Peak’s executive committee, said there’s a fair amount of interest from insurers so far. None of the insurers Peak is communicating with agreed to comment for this article, although Aetna said it plans to submit a bid through its local subsidiary, Meritain Health. 

“They’ve struggled with the negotiation piece, too,” said Drangstveit, whose day job is serving as executive director of the Family & Intercultural Resource Center, which serves Summit County. “So the fact that we’ve been able crack that nut for them is very appealing.”

The insurer or insurers selected would take on all the typical insurer duties, such as claims adjudication, prior authorization and chronic disease management for members. 

The effort has the support of a powerful figure—Colorado Insurance Commissioner Michael Conway. He thinks the model, which he’s not aware of being used anywhere else, will work because it combines the individual, small- and large-group markets to gain more leverage over insurers. 

Conway is so confident that he’s working to get a similar operation up and running at the state level. He’s in conversation with the state employee plan, school districts and counties about building a so-called community purchasing model that can lower costs statewide. He said community leaders in Eagle County, which neighbors Summit County and is similarly expensive, and in Grand Junction, Colo., are discussing the model as well.

Katy Spangler, principal at the health consultancy Spangler Strategies and senior adviser to the American Benefits Council, said it’s a new idea that’s very intriguing. Whether it works depends on the prices Peak negotiates—which they declined to make public—and whether those yield lower insurance premiums, she said. One thing is for sure: It’s a sign of the times. 

“I think the healthcare system seems to be hitting a little bit of a tipping point,” Spangler said.

The effort was strengthened by a wealth of claims data Peak’s leaders gathered from five self-funded employers in the county and from the state’s all-payer claims database. Using the data, Leif Associates found that the county’s providers collected more than 500% of Medicare rates for outpatient hospital services in 2015 and 2016. For inpatient hospital services, Centura collected between 200% and nearly 250% of Medicare rates. For professional services, Summit County providers collected 200% of Medicare rates.

It turns out those prices are driving people out of the county for care. Roughly 60% of residents’ medical costs were paid to providers outside of Summit County in those years, Leif’s analysis found, although some may have left for other reasons. 

That latter point made it clear why Centura should get involved, said Mark Spiers, another member of Peak’s executive committee.

“If they could provide good incentives through pricing to get people to stay within the Centura system, they might be able to keep many of those patients that were going outside of their system inside Centura,” said Spiers, a retired pharmaceutical executive and board president of the local Summit Foundation. 

Ultimately, Centura agreed to “very aggressive” rate reductions, said Lee Boyles, CEO of the system’s St. Anthony Summit Medical Center.

Some alliance participants are concerned about the plan having enough provider options for members, said Sarah Vaine, an assistant county manager with Summit County—one of the participating employers—and a member of Peak’s executive committee. She said the plan may end up appealing to small businesses that didn’t offer their employees any coverage previously or individuals who prioritize price over choice. Peak’s leaders have maintained a “do no harm” mantra throughout the negotiations with Centura, meaning they don’t want to leave out any local providers who want to be involved, Vaine said. 

“We almost had to walk away a couple times because of that piece,” she said, adding that systems generally want to drive everyone to their system instead of giving options. 

For his part, Boyles, the hospital CEO, said although Centura “would definitely” have the capacity to take all of the new patients, the plan members deserve choice. 

Some of Peak’s success will depend on how well the carrier selected is able to manage the small population of members that drive 50% of the costs. Chris Kalkhof, a managing director in Navigant’s healthcare value transformation practice, said that includes identifying medical conditions early, ideally in ambulatory settings. “That would have a big impact on insurance premiums relative to underwriting risk,” he said. 

Some experts are less excited about the project. James Robinson, a professor of health policy and management at the University of California at Berkeley School of Public Health, said there’s not a great history of employers circumventing insurers to contract directly with providers. “They think they can do it better and then it turns out that they can’t,” he said. 

Robinson said he thinks Peak’s efforts are worth following, but it’s far too soon to know whether they’ll work, much less be replicated in other communities. “I don’t want to be a cold shower, but there’s too much of a hype cycle in stuff just generally,” he said.

But locals aren’t letting anyone dampen their excitement. Mike Dudick, CEO of Breckenridge Grand Vacations, one of the participating employers, said he envisions the plan lowering the cost of healthcare for everyone in the community, not just his company and its more than 600 employees. 

“I would assume that there’s strength in numbers,” he said. “I also assume, in fairness to Centura, that they understand they need to do the right thing, which is to not gouge the people of Summit County on the cost of their healthcare.”