The New Playing Field: Big employers steer patient volume to high-quality, affordable providers

Need a knee or hip replacement? If you work for Walmart or Lowe’s, and you’re willing to travel to Baltimore, Md., Irvine, Calif., Springfield, Mo., or Seattle, Wash., you can get one – for free.

Domestic medical travel or tourism isn’t a new concept. But if it catches on, it may affect the way supply chain executives select and acquire so-called physician-preference items.

In October 2013, Walmart, Lowe’s and other employers joined the Pacific Business Group on Health Negotiating Alliance, San Francisco, Calif., to launch what they are calling a national Employers Center of Excellence Network, to offer no-cost knee and hip replacement surgeries for employees.

PBGH, working with healthcare management company Health Design Plus, will oversee the network, which will include treatment for knee and hip replacement surgeries for the more than 1.5 million employees and their dependents enrolled in Walmart’s, Lowe’s and other large employers’ eligible medical plans.

Employees will receive consultations and care covered at 100 percent without deductible or coinsurance, plus travel, lodging and living expenses for the patient and a caregiver. Patients must be healthy enough to travel for the surgeries. The program is voluntary, and employees or their covered dependents can still choose to receive care from local providers and incur routine costs.

The four designated “centers of excellence” healthcare organizations for the hip and knee program are Johns Hopkins Bayview Medical Center, Baltimore; Kaiser Permanente Orange County Irvine Medical Center, Irvine; Mercy Hospital in Springfield; and Virginia Mason Medical Center, Seattle.

Quality first
That a group of employers banded together to contract for orthopedic procedures is a sign of the times, says David Lansky, Ph.D., president and chief executive officer, Pacific Business Group on Health.

“Our members set up the [Pacific Business Group on Health Negotiating Alliance] in the mid-90s,” he says. “At the time, they were interested in collectively purchasing HMO products in the market.” HMOs were still relatively new, and employers were interested in pooling their covered lives to obtain better rates from providers. (Though that aspect of the program ended three years ago, the Negotiating Alliance continues to operate as a mutual benefit corporation for joint purchasing activities.) “Today, employers are very interested in contracting for high-quality care with specialized providers and they’re looking for bundled payment packages from them.” Bundled prices offer predictability – something fee-for-service
arrangements cannot.

The four providers for the hip/knee program were selected based on the quality of care they provide – not price, says Lansky. “Our premise was that, ultimately, by choosing the highest quality programs, there would be long-term cost savings, with lower complication rates and fewer repeat procedures.”

The Negotiating Alliance started with a list of about 30 programs around the country, all well-known for orthopedic care, he says. Its RFP required providers to respond to questions about their facilities as well as their surgeons, including training, volume, complication rates, outcomes, patient satisfaction and more. Alliance members were also looking for geographic spread to minimize travel time for employees seeking orthopedic care.

“We looked at clinical care pathways, appropriateness criteria, pain protocols, the way they manage outcomes data,” explains Lansky. “We’re asking them to be very transparent, and to continue to document what they’re doing.” Site visits were also part of the selection process.

Participating hospitals had to agree to collect outcomes data, so the Negotiating Alliance could track how well patients were doing 12 months after surgery. They also had to agree to participate in a data registry, several of which exist around the country. “These are ways of collecting data on individual orthopedic cases and comparing them to national and regional norms,” explains Lansky. The providers also had to agree to collaborate with each other on best practices. “So there was an expectation of transparency and continuous improvement.”

Strong interest among providers
Though the criteria sound daunting, the selection process – from initial meetings with Negotiating Alliance members to final selection of the four healthcare providers – took only seven or eight months, says Lansky.
Major providers understand what employers are seeking and why, and they’re eager to accommodate the requests of major customers, says Lansky. “Orthopedic and cardiac procedures, which are high volume and high margin, are an important part of the business strategies of these large institutions. A program such as ours gives them the opportunity to be visible in a national program sponsored by well-known employers. That’s very attractive to them. They also want to be pioneers in learning how to make bundled payments work. They want to be in the forefront.”

In fact, since the Negotiating Alliance made its announcement in October, Lansky has been contacted by other hospitals expressing interest in the program. “It’s exactly the response we wanted. We wanted to stimulate interest in providing high quality and affordable care.” (At press time, the Alliance was not seeking more hospitals for the hip/knee program, though it may pursue agreements with other providers for different procedures.)

The national Employers Centers of Excellence Network complements Centers of Excellence programs that Walmart and Lowe’s have and will continue to offer separately from the Negotiating Alliance. In 2013, Walmart expanded its long-standing program covering transplants at the Mayo Clinic to include treatment for certain heart and spine surgeries at five hospital and health systems in the United States, including network providers Virginia Mason and Mercy Springfield, for associates and their covered dependents enrolled in medical plans.

In 2010, Lowe’s began an alliance with Cleveland Clinic in Cleveland, Ohio, to provide its full-time employees (and their covered dependents enrolled in the company’s self-funded medical plans) enhanced benefits coverage for qualifying heart surgery procedures.

Supply chain implications
Now that the groundwork for the hip/knee program is in place, the really hard work begins. “The hard part is communicating to the employees and their families why this is a good program, and how they can take advantage of it,” says Lansky. Given thousands of employees and family members, “How do you create awareness about the opportunity for them to save money and get higher quality of care? And once you do, you get a lot of people who haven’t traveled widely; it might be difficult to get them on a plane. So, how do you help people see the advantages and give it fair consideration?”

Though quality is paramount, cost is a consideration as well, and the Negotiating Alliance program might help supply chain executives get a hold of some of those costs. “We realize pluralism of implants is a problem,” says Lansky. “We won’t micromanage. But with [our network providers] focused on transparency and joining a registry, they will begin to see whether specific devices are associated with better outcomes. The registry offers thousands of pieces of data with which to make judgments. All these things should help [supply chain executives’] work with physicians.

“We’re hoping this drive toward selecting high-quality providers will be based on quality and affordability.”

Steering patients to lower-price hospitals prompts others to lower prices
Along with steering patients to lower-price hospitals, a California Public Employees’ Retirement System (CalPERS) reference pricing initiative motivated other hospitals to reduce prices for hip and knee replacements, according to a study by the Center for Studying Health System Change (HSC) for the National Institute for Health Care Reform (NIHCR).

CalPERS and Anthem Blue Cross in 2011 adopted reference pricing to guide enrollees in CalPERS preferred provider organizations to hospitals that provide routine hip and knee replacements below a certain price threshold. (In reference pricing, the enrollee decides whether to be treated at a lower-price provider with no out-of-pocket expense beyond typical cost sharing, or at a higher-price facility with additional cost above the reference price.)

After reviewing quality and cost information showing the hospital price for routine hip and knee replacements ranged from $15,000 to $110,000, CalPERS and Anthem set a threshold of $30,000 for hospital facility payments for both procedures, and designated certain hospitals that met certain quality standards and where enrollees could get care at or below the reference price.

Enrollees who elect to have surgery at designated hospitals pay their plans’ typical deductible and coinsurance up to the out-of-pocket maximum. Patients can go to other in-network hospitals for care but are responsible for both the typical cost sharing and all allowed amounts exceeding the $30,000 threshold.

Saves money
The CalPERS program seemed to resonate with workers. In 2011, the first year of the program, the share of CalPERS patients going to designated hospitals increased to 63 percent (280 of 447 total), up from 47 percent (231 of 485 total) in 2010. What’s more, the program saved CalPERS and enrollees money – $2.8 million for CalPERS and $300,000 in cost-sharing for enrollees in 2011, without sacrificing quality.

Soon after CalPERS rolled out the reference pricing program, several non-designated hospitals renegotiated their contracted price with Anthem (for all Anthem-covered patients, not just CalPERS members) to become designated hospitals and retain CalPERS patients. Anthem’s list of designated hospitals grew from 45 to 54 hospitals by September 2012.

Also, while 37 percent of CalPERS patients went to non-designated hospitals in 2011, some respondents suggested that these were typically hospitals with prices in the $31,000-$35,000 range, rather than the $90,000-$100,000 range. Patients may have selected these hospitals because they were closer or more convenient, and they were willing to pay the additional cost.

Some non-designated hospitals that were unwilling to renegotiate their contracted price with Anthem agreed to waive amounts above $30,000 for CalPERS members to retain their business.
The study’s findings are detailed in a new HSC Research Brief – The Potential of Reference Pricing to Generate Health Care Savings: Lessons from a California Pioneer – available online at www.hschange.org/CONTENT/1397/.