Health care coalitions: medicine for the bottom line.

Since the cost of keeping employees in the pink is making some employers see red, they might want to take two aspirin and consider joining a health care coalition in the morning.

Employee health care isn't just a human resource issue any more. The cost and delivery of health care benefits have a direct impact on employee recruitment and retention, managing an aging workforce and increasing productivity - and therefore on the bottom line.

Cost is, perhaps, the dominant factor. Total spending on employer-sponsored health plans rose 6.1 percent in 1998, ending five years of nearly fiat cost growth, according to a survey from William M. Mercer, Inc. The survey says employers predict their expenses will rise even faster this year; nearly three-fourths anticipate increases averaging 9 percent.

In an effort to keep a lid on costs - and maybe even drive them down - some employers have formed or joined benefits purchasing consortiums, or health care coalitions. The concept is simple. Coalitions - sometimes called alliances or cooperatives - are formed by multi-employer, public and single-employer health funds that want to maximize their purchasing clout to obtain the best possible health benefits at the lowest possible cost. Hospitals, insurers and other health care providers offer discounts to large purchasers in exchange for the volume of covered lives they can deliver as patients. Thus, a coalition of multiple funds can buy the same services at lower cost than individual funds can.

Holding the Purse Strings 

As 22 percent of U.S. consumers report dissatisfaction with their managed care plans, up from 17 percent in 1997, according to a Hewitt Associates survey, this new prescription has a beneficial side effect: Coalitions can leverage improvements in the quality of care their enrollees receive. In fact, according to Dr. Arnie Milstein, chief physician at William M. Mercer and medical director of the Pacific Business Group on Health, "Since quality is extremely poorly managed in American health care, if you can be successful in developing market clout, there's an opportunity to reduce costs by 30 percent while improving quality."

Milstein says the San Francisco-based Pacific Business Group, which now has 3 million covered lives, is the Adam and Eve of coalitions. "It was the first," he notes. "Over a two-year period, we reduced premiums collectively by about 13 percent, generating an eight-figure collective saving. Over the subsequent two years, we held the line. Over four years, we paid 12 percent less than we had been. Cumulatively, it's a vast amount of money. And we're pioneering in advancing the quality of cart."

But, he adds, not all coalitions have been as successful. "Coalitions, like any other technology, have tremendous range in how they add value to the bottom line. Execution is everything. The key variables are the skill of execution and the support [the arrangement] gets from employees," Milstein says.

Geography plays a part, too. "Coalitions can be local, regional or national, but there are more local and regional ones," notes Charles Blanksteen, a Mercer worldwide partner and health care expert. "Many very large companies of 50,000 to 100,000 employees are generally spread across the country, so they have no local clout. When you have four or five employers join together, that forms a nucleus and an economic basis for joint purchasing. And when coalitions get powerful enough, they can demand higher quality offerings." While cost savings often depend on location, you can expect to lower expenses by between "5 percent and 15 percent, depending on the circumstance," he adds.

Collective Bargaining 

"Most coalitions are formed by purchasers trying to work collectively, but take on different forms," says J. Sean Kenney, president and CEO of the Greater Detroit Area Health Council, one of the oldest and largest coalitions in the country, representing over 110 organizations and 1.4 million covered lives. "Value-based purchasing is growing. Trying to improve the bottom line relative to expenditures doesn't buy cheap, but it buys quality and value. And coalitions over the last decade have gotten better at optimizing quality and value."

Kenney thinks the plusses of coalitions are many. "There's an opportunity to save on costs through collective specifications," he explains. "The CFO is the end purchaser and can go out and shop for the best price. But he or she also should identify and help to build the right value. Coalitions can develop the expertise to draft specifications for suppliers, or to create local standards." Furthermore, he adds, "There are immediate, sizeable cost savings. We're saving $20 million-plus in pharmacy alone in our coalition."

But, of course, there are caveats. "It takes longer to create change; it's not a quick hit to the bottom line," Kenney says. "It takes time and a lot of handholding to influence health care delivery. It's not just a matter of buying care for the cheapest price and giving employees something sub-par. It's in the enlightened interest of employers to shape the whole health system for themselves and their employees. That takes more energy and more meetings. It takes time and resources."

David Kempken, vice president of benefits finance for DaimlerChrysler, agrees. The Chrysler division of the company covers about 400,000 lives - including dependents and retirees - through the Greater Detroit Area Health Council (to which Chrysler has belonged, Kempken says, for over 20 years). "It can be time-consuming," he acknowledges. "But the participation of its members really is what makes the organization. To get something out, you've got to invest something in it." He estimates that he spends an average of one-half day a week on coalition-related business, noting, "The time varies depending on what's hot at a particular moment."

"You may not be able to get things done as quickly as you may like," adds Joan Rodney, regional director of southeast Michigan health care initiatives for General Motors in Detroit, which has participated in the Greater Detroit Area Health Council for "probably 15 or 20 years," she says. While GM's 300,000 covered lives in southeastern Michigan are, for the most part, insured through the company, the auto giant participates in the GDAHC in other ways. "We work together when we evaluate HMOs and in giving out consumer information," Rodney explains. "The ability to work together within the community to identify common areas for improvement, and to be able to have someone facilitate all of that for you, is a benefit. I don't have to call 16 different people [to get information]. You have to work on building consensus. But if you can get buy-in, you'll have a more successful implementation."

"Sometimes there's a reduction in flexibility in benefits design," Mercer's Milstein adds. "When progress is made, you have the issue of sharing the credit between the benefits department and the purchasing coalition, although that's not a big problem. And there can be discomfort unless solutions are invented in-house."

But any potential downside is not a problem, notes Blanksteen, also with Mercer. "The work can be shared and the results can be distributed," he thinks. "You need a core of five or six companies to get critical mass, and then add people who like what you're doing. But if it gets too large, it can become unwieldy."

Blanksteen says interest in coalitions is growing. But while he thinks it's easier to join an existing group than to form a new one, starting from scratch offers more flexibility. With an existing entity, he notes, "The bed is made but you have to like the bed. Forming a coalition can determine if it's a four-poster or a sleigh bed or a cot. Companies even get together to share consulting costs, to create enormously powerful databases. The real trick is to find people of like minds and sufficient cultural similarities to make a close-working group possible. Then there's nothing to stop you from talking about drug, disability and dental plans."

Milstein suggests you look at three things before you recommend enrolling your firm in a coalition. First, he asks, "Do you have at least moderate flexibility in benefits design? That's often critical to creating incentives to improve price and/or quality." Second, he advises, ask if your company has "enough employees in a given geography to justify the costs." GM's Rodney, for example, says her company also belongs to coalitions in Flint, Mich., and Dayton, Ohio, and to the Pacific Group on Health, among others. But having fewer than 2,000 or 3,000 employees in a given area, especially if you're not headquartered there, requires a cost/benefit analysis, Milstein thinks. And finally, he says, "Look at the track record of the coalition. The ones that have been effective have had a much greater impact than companies that go it alone."

One way to test the concept, before you propose that your company overhaul its entire benefits package, is to join a prescription drug plan coalition, notes James McParland, president of the Connecticut Coalition of Taft-Hartley Funds.

At the end of the day, though, the GDAHC's Kenney thinks a coalition is "an enlightened way for the stakeholders to get together and improve the system for everyone. You want to have accountability and to serve your population in a cost-effective manner, providing value not only to the employee, but to the whole community. And the real power is in improving the delivery system for the entire community."

GM's Joan Rodney seconds that thought. "It's an opportunity to understand what's happening," she explains. "It's an opportunity to work with others. We can only make positive changes by working with others. And it's critically important that a lot of these initiatives be led by purchasers and consumers."

As DaimlerChrysler's David Kempken puts it, "If we didn't have GDAHC, we'd have to recreate it."

Pulse Points

Deciding whether to join a health care coalition requires some due diligence. J. Sean Kenney, president and CEO of the Greater Detroit Area Health Council, suggests you ask these questions:

Ask the Coalition

* Does it participate in national standards and accrediting agencies?

* How does it manage processes (especially for managed care companies)? is it just discount medicine, or are there quality standards?

* Does it monitor when people are being over- or under-served and take corrective action?

* What is its immunization rate for children? Does it offer Pap smears, mammography and retinal testing for diabetes?

* How does it deal with complaints?

* What's the waiting time for an appointment with a provider?

Ask Internally

* How many employees do you have?

* What's your company's trend line in health care expenditures?

* What's your company's mission regarding employee health care?

* Do you want to reduce health care as a business expense?

* What health plans do you currently offer? Is this too many? Too few?

* Do you want to offer managed care options?