Directors Corner | August 2021 | Changing the Order of Things: Prudently Purchasing Healthcare

Most employers that self-fund their employee health benefit plans do so in order to “drive the bus.”   And, of course, self-funding does give employers more control over benefits.  However, as I’ve written in the past, the trend over several decades has been that health costs for self-funded plans tracks along the same exact road as fully insured plans – a road up a never-ending hill with an unjustifiable incline.  Even worse, we’ve seen no improvements in the ubiquitous variations in outcomes that Dr. John Wennberg first wrote of in 1975!  In short, self-funded plans have had essentially no impact on the market.

If you have any question as to why even the largest self-funded employers haven’t actually been able to  map out their own course and take control of costs or drive the market toward more reliable outcomes, these two articles should resolve the question….

• “The Effects of Hospital Consolidation in Colorado” describes, very specifically and succinctly, why Colorado is something of a national poster child for rising hospital prices.
• In “Large Self-funded Employers Lack Power to Negotiate Effectively Negotiate Hospital Prices” the authors actually quantify how much employers are at a purchasing disadvantage in the market place because of the trends described in the article above.  Their calculation is stunning: individual employer’s going nose-to-nose with a health system is the equivalent of one of my 65-pound grandsons venturing into the ring with a suma wrestler.

Even the community’s largest employers haven’t the necessary purchasing power to negotiate prices or impact quality in an oligopolistic market.   But that’s not the real challenge.  Negotiating lower prices is not the real solution.  Rather than “simply” mitigating results (e.g., unjustifiable prices), we need to fundamentally alter the causes for unjustifiable pricing and unreliable outcomes.  Forcing structural change in the market is our only chance to address sustainably, affordability and ongoing improvement in outcomes.  We must do what Nicolo Machiavelli, in 1535, referred to as “change the order of things.”

This broader, more strategic goal explains the joint purchasing initiative that we’ve entered into with the Purchaser Business Group on Health (PBGH).  Through this arrangement, we uniquely align and leverage the purchasing practices of our local, largely public employers with those of national, private employers.  Doing so allows us to further realize the intent for The Colorado Purchasing Alliance I had discussed with Governor Polis – to address healthcare reliability and affordability on behalf of ALL Colorado employers/purchasers so we can advantage our overall economy on an ongoing basis.

Our purchasing partnership with PBGH has both short- and long-term tangible advantages:

• Short-term synergy: PBGH brings unprecedented experience/expertise to The Colorado Purchasing Alliance for identifying, selecting, and contracting for high performing services throughout the State.  Simultaneously, through our partnership, we assist PBGH in establishing true “Centers of Excellence” in Colorado for the national employers who have a significant presence in Colorado.
• Longer-term change: To be completely transparent, we intend – both regionally and nationally – to demonstrate that the employers who pay for care are the ones who can and should practice due diligence in purchasing health careand not simply passively pay for care in a manner that works to the advantage of a surrogate.  This meets fulfilling employers’ fiduciary requirements as defined by the US Department of Labor to exercise “prudence” in purchasing and to pay “reasonable” prices.

It is important to note, however, that this approach need not only advantage purchasers.  Because PBGH members are national employers, this approach potentially advantages those Colorado hospitals that perform given services at the highest levels by providing an opportunity to attract business from contiguous states or even from across the country.  Hospitals with services that compete with the best in the country will be included in PBGH’s national “Centers of Excellence” program!   Want more business?  EARN IT!

PBGH and TCPA will realize the purpose of our relationship by doing exactly what is mentioned above: purchasing healthcare with due diligence and, perhaps for the first time, genuine fiduciary responsibility – both of which require utilizing benchmarks as integral to prudent purchasing.

In our specific case this means we will:

• Identify providers of specific, higher spend services where those providers’ outcomes scores rank in the top decile nationally on CareChex Hospital Ratings.  It is to these providers only that we are sending requests for information – and only for specific services.
• Select providers who, during the course of subsequent interviews, demonstrate that they 1) routinely and rigorously apply specific appropriateness criteria for interventions and 2) have a demonstrable history of continuous quality improvement.
• Contract at competitive pricing using alternative payment approaches that promote accountability and a focus on cost (rather than revenue) management.

Finally, and most specifically, we’ve begun this process for select orthopedic services and will, subsequently, send out RFIs for other services including general surgery, maternity, oncology, and other services.  Based on a pricing analysis of procedures that can be performed on an out-patient basis for our participating purchasers (using the Colorado APCD), we decided to initially contact free-standing facilities given their significant and documented price advantage over HOPDs.

With 45 years of experience in healthcare, I’ve never been more enthusiastic or optimistic about the mission of achieving the best outcomes at the most affordable prices.

But we must be both clear-eyed and resolute: this can only be done if we change the order of things.