Lessons for providers from a purchaser's perspective.

During the summer of 1989, the New Product Development Division at John Hancock reviewed data from the first half of the year and became aware of an important trend that confirmed anecdotal information from our corporate customers--John Hancock had paid for as many transplants by July 1 as it had in all of 1988! Because the majority of these procedures are extremely high cost (the exception being uncomplicated renal transplants), there appeared to be an opportunity to control the cost of these procedures and to ensure that services are rendered by the highest quality providers.

The philosophy of the JHNTP from the very beginning has been to select providers whose quality of care and clinical outcomes are demonstrably superior, to negotiate a fair price, and to allow the inherent efficiency of those providers to achieve the desired cost savings. The program neither micro-manages the transplant centers' clinical decision making nor attempts to squeeze the last nickel of price reduction from providers, preferring to build mutually rewarding long-term relationships.

When we began considering options for developing a network, we were immediately impressed by the statistics on the proliferation of transplant centers. In 1990, 261 transplant centers were registered with the United Network for Organ Sharing (UNOS): 235 kidney, 151 heart, 81 heart/lung, 71 lung, 87 liver, and 86 pancreas. [1] This figure is actually understated, because it does not include centers performing bone marrow transplantation. UNOS is not involved in matching bone marrow donors and recipients.

Many of these programs are quite new and have little transplant experience. Even though members of the transplant staff have often been recruited from other institutions, the organizations have not been doing transplants long enough to have a well-practiced transplant team of surgeons, physicians, nurses, coordinators, and social service staff in place, as well as the stable track record we felt was necessary. Our working hypothesis was that a transplant center's results depended on many factors, not just the technical proficiency of the transplant surgeons. Moreover, from the patient's perspective, a total quality experience encompasses many nonmedical factors--the coordination of the scheduling and evaluation process, the existence of patient and family support groups, and the availability of convenient, safe, and moderately priced housing, to mention only a few of the less tangible characteristics of the more experienced transplant programs.

The Selection Process

We established a selection process that encompassed the following elements:

* Solicitation of proposals from experienced transplant programs.

* Review of clinical considerations by an expert panel.

* Site visitation to evaluate all elements of the transplant program.

* Financial negotiation.

Drawing a corollary from the medical literature, which shows that the outcome of coronary artery bypass procedures is related to a provider's volume, [2] we established minimum volume thresholds for transplant centers' inclusion in the program. This measure is also employed by HCFA in selecting heart transplant providers. Applying this threshold to the UNOS membership list resulted in the pool that received our Request for Proposals.

We requested information in a variety of categories, from survival rates and treatment protocols to support groups and on-site housing, as objective data that could be used to assess the applications. No financial information was accepted at this point. We established an expert panel of clinicians actively engaged in transplantation, four of whom reviewed and scored each application. While this group of experts was acquainted with many of the programs and their personnel, they relied heavily on the information provided in the proposals. Because UNOS requires that member centers report their survival statistics annually in a uniform format, it was relatively simple for providers to furnish this information. The other aspects of the applications varied widely, however, indicative of the differing emphasis each program places on various features of its service. In order to evaluate the comprehensiveness of the programs and personally view the available housing, we conducted site visits to each finalist center.

Once we had completed the expert evaluations and site visit process, we targeted the finalist centers and began negotiations. Relying on data from John Hancock's proprietary claims database, we used paid claims for transplant "episodes of care" for 1989 as a yardstick to measure what transplants had cost John Hancock customers at "retail" prices. We then asked providers for their pricing proposals, encouraging them to be as creative as possible. The results were very revealing, illustrating providers' limitations in internal cost analysis, as much as their ability to price aggressively and package innovatively. Some centers were quite risk-averse, while others were willing to propose comprehensive, year-long packages, including transplant procedures and follow-up care.

To achieve the best possible combination of agreements, providing employers and patients with the broadest possible set of choices, we elected to accept a spectrum of contracts. Included were some full-year, all inclusive, global, fixed price arrangements, as well as agreements for comprehensive packages of care provided over a shorter interval. While this adds administrative complexity, we are confident that we will achieve substantial cost savings.

To ensure that we would achieve the cost savings anticipated, we performed an analysis to compare the actual "retail" charges that were paid by John Hancock for transplants performed in 1989 and 1990 with what those transplants would have cost if they were performed at the JHNTP provider closest to the patient's home. Representative findings from the analysis for 1990 transplants are shown in table 1, page 19. As the data show, very substantial savings may accrue, especially in outlier cases where such complications as rejection, organ failure necessitating retransplantation, or the presence of comorbidities can result in prolonged stays and elevated cost. By introducing the element of shared risk, JHNTP is protected against some of the higher costs that would otherwise ensue.

Lessons for Broader Application

When this article was written, JHNTP had been in operation over half a year, and the number of patients using network providers (either awaiting transplant or already transplanted) has exceeded our six-month goals. At this rate, our projected first-year target of 40 transplant patients using contracted centers will be surpassed. While we continue to learn, some of the conclusions we have already drawn may be instructive to transplant programs as well as to others engaging in specialized contracting:

* Concentrate clinical expertise.

* Present program components clearly.

* Contract aggressively for managed care.

The starting point of our selection process serves as the basis for the first lesson for providers: "Don't try to be all things to all patients" or, perhaps more to the point, "Pick your game carefully and play it better than anyone else." While the technology for organ transplantation is now stable enough for many providers to consider establishing programs, there are economies of scale and a shortage of organs (table 2, page 20). These two factors make entry into the transplant arena a strategy fraught with risk. Some centers registered with UNOS are currently awaiting their first transplant, while others have performed very few. Recently, a large John Hancock customer was presented with a "Centers of Excellence" proposal, including very steep discounting, from an institution that had performed two heart transplants. Such proposals are difficult for players to evaluate seriously. While there is high prestige to be garnered from operating a transplant center, there is little benefit to spreading still thinner the already limited pool of donor organs. If an institution is serious about making a contribution to organ transplantation, it should look first to improving its yield of organ donations.

The opposite side of this coin is that, by focusing their resources more appropriately, providers can fill existing needs and participate in future opportunities with managed care organizations. This will improve their market share and allow them to reap the rewards of advancing on their production curve. While it is seldom enjoyable to concede any skirmish to the competition, the surest path to success lies in playing to proven strengths.

"Centers of Excellence" programs such as JHNTP are only the visible tip of a huge iceberg. While transplantation represents the most costly and dramatic form of medical treatment in current use, the next major emphasis will be to create similar networks for the less expensive but much more frequent procedures, such as coronary artery bypass grafting, with the ongoing HCFA experiment serving as prototype. [3] Providers already performing these procedures or treating patients with other high cost illnesses, such as various forms of malignancy, can concentrate resources in these areas and become the most highly regarded provider for these services.

The second lesson is drawn from the variable quality of response to our RFPs, the simple observation being, "Put your best foot forward." While we

Table 1. Estimated Transplant Program Savings--1/1/90 to 12/31/90

           Liver TXP                        Heart TXP
Actual Cost [*] Program Savings  Actual Cost [*] Program Savings
 $161,823          $ 45,000       $133,019           $36,000
  223,470           108,000        143,821            49,000
  255,127            87,000        136,103            76,000
  231,041            83,000        157,605            23,000
       Bone Marrow TXP                      Kidney TXP
Actual Cost [*] Program Savings  Actual Cost [*] Program Savings
 $125,540          $37,000         $97,818           $57,000
  216,507           57,000          94,808            36,000
  108,384           26,000          58,866            20,000
  158,557           49,000          86,455            39,000

(*) Actual cost is for the same package of transplant-related services that would have been covered under the terms of the contract with the center closest to the patient's home.

Table 2. Patients Awaiting

Organs, Aug. 14, 1991

Kidney        18,825
Heart          2,127
Heart/Lung       166
Lung             539
Liver          1,469
Pancreas         598
Total        23,724

went to great lengths to investigate apparent deficiencies in several applications, contacting center administrators to obtain missing information or to verify data that appeared to be misleading, there is no substitute for a complete, well-constructed RFP response. It is necessary that a provider achieve a true "level of excellence" to compete in the arena we created. The purely objective aspect of this is communicated in outcome/survival data, which providers must have available for analysis.

Collecting outcome data will be particularly important for providers responding to nontransplant RFPs, where there is no central organization such as UNOS tracking this information in a standard format. However, they must also be capable of communicating their special competence in a manner that transcends the facts and figures of outcome data. Payers are increasingly sophisticated in analyzing the aspects of a total quality experience for patients. Contracting centers must be prepared to highlight everything from the way the transplant coordinator functions in an integration capacity between patient, referring physician, transplant center, and payer to the way a family is supported emotionally throughout the long and arduous process. Although we conducted site visits to all finalist institutions to elicit these intangible aspects, providers should be aware that not all network developers will go to this trouble. Therefore, they are well served by making the effort to communicate this is in written or some other (videotaped) form.

This brings us to the final, and perhaps most significant, lesson of this experience: Providers should be equipped to engage in managed care contracting that reflects true cost efficiencies. Providers are, or should be, in possession of the most comprehensive information on what it costs them to treat particular types of patients. They should be able to structure a package of services that fills a payer's need for a predictable price while achieving efficiencies that result in substantial profit. Discounted fee-for-service in this setting neither satisfies the payer's desire for cost control nor affords providers the opportunity to "do what they do best" and reap the benefits of their own cost effectiveness. Many transplant centers are already able to discuss ways they achieve these efficiencies: protocols that increase productivity, the abandonment of old and costly procedures that do not contribute to improved patient outcomes, volume purchasing, and sharing of costly equipment with other departments represent some of these techniques.

Finally, to engage in managed care contracting, institutions must have the internal capability to represent all of the interested parties to the payer community and to structure a comprehensive proposal. Some of the centers we solicited for proposals (including some of the most clinically prestigious) were simply not able to respond because there was no one authorized to prepare a proposal and negotiate on behalf of the hospital, its physicians, and the multitude of other service providers involved. John Hancock had contracts with as many as six signatories to an agreement. While every institutions is organized differently, none should be incapable of producing the information required to respond to legitimate requests for negotiations.

Conclusion

The future of health care offers exciting challenges. There will be opportunities both in the technical and scientific realm for those responsible for creating stable provider and payer vehicles for the provision of service. It will be increasingly important that both sides of this traditionally distant relationship be prepared to work together in order to make this future bright and mutually rewarding.

Robert J. Bargar, MD, SM, is medical consultant to the John Hancock National Transplant Network. Sandra E. Kretz, PhD, directs the Planning and New Product Development Division of the John Hancock Mutual Life Insurance Company.

References

[1] United Network for Organ Sharing (UNOS), National Organ Procurement and Transplantation Network, Richmond, Va., 1991.

[2] Hannar, E., and others. "Investigation of the Relationship between Volume and Mortality for Surgical Procedures Performed in New York State Hospitals." JAMA 262(4):503-10, July 28, 1989.

[3] "Medicare to Test Paying for CABG, Cataract Surgery." Medical Guidelines and Outcomes Research 2(3):6, March 1991.