How state groups are working to lower healthcare prices

A RAND report on hospital pricing last May pushed many employer purchasing groups into action.

The report infuriated self-insured employers who previously didn’t know how much they were paying, at least partly due to gag clauses in contracts between providers and insurers barring disclosure of negotiated rates even to plan sponsors, said Gloria Sachdev, CEO of the Employers’ Forum of Indiana. (A bipartisan bill in Congress would outlaw such secrecy provisions.)

The RAND Corp. researchers found that hospital systems’ average prices ranged from 150% of Medicare to more than 400%. Hospitals in Indiana, Wyoming, Maine, Wisconsin, Montana and Colorado had the highest average prices relative to Medicare, while those in Michigan, Pennsylvania, New York and Kentucky had the lowest.

“The RAND analysis showed that Colorado hospitals on average are being paid 270% of Medicare,” said Robert Smith, executive director of the Colorado Business Group on Health. “We’re paying Mercedes prices and getting a Peugeot.”

Here’s what’s happening in response to price growth in four states paying higher prices:

Connecticut and Maine
Starting next year, the state of Connecticut will offer its 210,000 employees and retirees financial incentives to get care for about 45 procedures and conditions from lower-cost, higher-quality providers in its new “network of distinction.”

In addition, plan members will receive incentives to get certain procedures like joint replacements done at selected centers of excellence across the country, said Francois de Brantes, a senior vice president at Remedy Partners, which is administering the state program.

That effort will be supercharged by the Connecticut Legislature’s decision to cut the budget for public employee health benefits by 10%.

Maine has adopted a similar but more limited centers of excellence program for its state employee plan.

Colorado
In January, the Colorado Business Group on Health launched a statewide employer purchasing cooperative, including the state employee health plan, which will encourage employees to use higher-value providers.

It will work with insurers to negotiate prices benchmarked to Medicare rates and will push insurers to make those same rates available to small businesses.

The Colorado group also will use composite patient safety and quality scores from Quantros to select network providers. Employer groups say many companies are leery about steering patients without reliable quality measures.

“We must generate price sensitivity, and the only way to do that is to match the consolidated power hospitals have with consolidated purchasing power,” said Robert Smith, executive director of the Colorado Business Group on Health.

Wisconsin
The Alliance, a purchasing cooperative, has started negotiating hospital contracts for its 250 employer members, representing 100,000 lives, based on rates of 175% to 225% of Medicare. That’s substantially less than they’re current paying. The cooperative also is negotiating bundled-payment rates for orthopedic and imaging services, encouraging employer members to offer workers incentives to use providers with lower prices and higher quality.

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