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HEALTH CARE INNOVATION

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Since before the Stone Age, the specter of a common peril has spurred communities to band together to brandish a common weapon.

But in the 1990s, communities of health care buyers have banded together only sporadically to brandish the common weapon of group purchasing power against the peril of rising health care costs.

In what has become the Managed Care Age, leading companies often have sought cost containment individually through shifting their employees out of indemnity plans into health maintenance organizations, point-of-service plans and preferred provider organizations, not by teaming up with other employers to dampen costs or improve quality.

The utility of health care purchasing alliances, however, may soon become as clear to employers as that of managed care itself.

According to the survey of 3,290 employers released last month by benefit consultant A. Foster Higgins & Co. Inc., health plan rates and costs this year are expected to increase an average of 4% (BI, Jan. 20), after remaining stable for the three preceding years, and health coalition executives and analysts expect more employers to take aggressive cost-containment steps. Health maintenance organization executives late last year said they would impose rate hikes of 1% to 6% this year, the first increases since 1994 (BI, Dec. 9, 1996).

It is hard to say if the coalition movement is fully prepared to mobilize. Experts say only about half of existing coalitions actually are doing health care purchasing; some are strictly purveying conferences and printing newsletters. Some have a history of cooperation with local providers that may be counterproductive when hard bargaining is required. Furthermore, the majority of employer groups suffer from limited funding and a shortage of staff that may force reliance on sponsors such as pharmaceutical companies-players that normally might be kept an arm's distance away.

The remarkable diversity of coalitions, in fact, makes the term "movement" hard to apply, because most coalitions are focusing strategies on their local markets and only occasionally applying the lessons of alliances in other cities and states. Every coalition is like a biological child, the product of the DNA of established, intertwined relationships between buyers and providers plus its current environment, which may be receptive, indifferent or hostile to direct employer action. And like a child, the primary goals are always survival and growth.

Last fall, an umbrella group of 103 employer health alliances brought its members together for the first time in a conference in Orlando, Fla. The Washington-based National Business Coalition on Health emphasized the ability of local coalitions to press ahead with community-based reforms that would trim health costs and enhance quality without relying on federal government help.

The meeting was designed not to fuse local coalitions into regional or national groups but in effect to teach leaders the basics of buyer/managed care dynamics and to send them home as missionaries. In the process, the conference also provided the opportunity for newer, less confident group leaders to make contact with seasoned veterans.

Employers are ripe for involvement in purchasing coalition activities because of renewed apprehension over prices, said Sean Sullivan, president and chief executive officer of the NBCH. "It should spur further collective action for employers," Mr. Sullivan said. "Some of them have been asleep for a while."

Mr. Sullivan acknowledged that many of the coalitions in his group have not yet achieved full-fledged health care purchasing initiatives. He estimated only half are doing purchasing of any kind, which may include only carve-out programs such as dental plans for coalition members.

Further, he estimated only a quarter of his membership is doing "broad based" purchasing aimed at negotiating with managed care networks and trimming prices across the board.

Many coalitions do good work with educational programs, he said. Coalitions' education programs run the gamut from how to negotiate with health plans, to implementing corporate wellness programs, to selecting a prescription benefit management program. Still, Mr. Sullivan said, "I just don't believe you can forever be an educational group."

In addition, few coalitions have yet embarked on quality assurance, despite Mr. Sullivan's opinion that effective coalitions must combine cost-cutting measures with quality improvement initiatives. The slow move into the health care quality arena has been partly due to the lack of reliable provider data, but that may change gradually, he said.

For example, this year several member coalitions in NBCH will use measures formulated by the Portland, Ore.-based Foundation for Accountability to help gauge managed care value in conjunction with employers (BI, July 1, 1996).

With the help of NBCH and with the example of more active groups as a beacon, some employer health care alliances are dedicating themselves to catching up in the coalition game after years of delay. Perhaps surprisingly, some of these groups are in the nation's largest cities and only now are starting to replicate the success of those in much smaller markets.

The New York Business Group on Health, a 15-year-old coalition that includes 120 businesses in the New York metropolitan area, counts among its ranks such corporate heavy hitters as Time Warner Inc., American Express Co., Revlon Consumer Products Corp. and telecommunications giant NYNEX Corp. Still, the long-term success of the coalition is in doubt unless the alliance moves from relatively low-key educational activities to actual health care purchasing and quality projects, said Laurel Pickering, managing director.

"We're not there yet, and we're just starting to go there," said Ms. Pickering. This year, the coalition is offering its members the chance to contract with a prescription benefit management service. It is the first time the group is offering a product that will provide members hands-on savings.

The reason for the slow emergence of activism by the New York group has a lot to do with how the composition of the group originally was conceived, she said. It was intended to be an all-inclusive forum for just about everyone involved in health care delivery and purchasing, and the board includes not only buyers but also insurers, pharmacy executives and benefit consultants.

Collaboration around the table once was seen as beneficial, "but for the most part it's made things more difficult," Ms. Pickering said.

This isn't to say Ms. Pickering wants the health care heavyweights of the group to exit, because they provide substantial financial backing through dues, donations and sponsorship of conferences. But their prominence in the organization has made NYBGH think twice before planning aggressive actions in joint purchasing, a goal that is only in the planning stages.

How strong should a coalition's ties be to the provider community? It is a difficult question for young and old groups, and the answer will vary depending on the local environment, said Blaine Bos, a principal at Foster Higgins in New York. While a confrontational posture vis-a-vis health plans and hospitals provides some advantages, Mr. Bos said a cooperative mood may work well in most cases.

Despite the weight of its traditions, the New York coalition is making plans for a quality measurement program that will supply employers with information on managed care plan processes and outcomes-data that will then be used to negotiate better care with networks. Providers in the market, Ms. Pickering said, "won't be thrilled with it."

Without more aggressive programs, however, the New York coalition may die because its members will see it as neither saving them money nor improving health care standards in the region, she said.

"I absolutely do get frustrated. I have felt the New York Business Group on Health really has to get it together and tackle this market, band these employers together and fire them up," she said. "You have to make sure you're really providing them value for their money."

The key to making the coalition more powerful will be to pull in more members, she said, which also will have the beneficial effect of bringing in more dues and potentially augmenting the group's three full-time and three part-time staff members.

A coast away, the San Francisco-based Pacific Business Group on Health is planning numerous quality initiatives for 1997 that are close to what Ms. Pickering envisions for the New York market someday. The PBGH has 32 large employers as members, about 18 of which are engaged in a group purchasing program now in its third year, said Catherine Brown, director of PBGH's negotiating alliance.

PBGH has used a statewide Health Plan Employer Data & Information Set and surveys of large medical groups to develop provider report cards and negotiate performance measures for the past three years. Over that time, there has been an overall 14% premium rate reduction among member employers, although the reduction has diminished each year, and last year prices were flat, Ms. Brown said. "I think we've been squeezing the fat out of the market, and we've made a lot of progress to date," she said.

Formed in 1989 by Wells Fargo Bank and Bank of America executives who were frustrated by high health care inflation, PBGH has been a success because its constituent employers put aside their individual differences so the coalition "thinks and acts as a (unified) group," Ms. Brown said. Even though the coalition's members are large, and include such companies as Atlantic Richfield Co., Bechtel Corp., General Electric Co. and Hewlett-Packard Co., all recognize the advantages of group strategy.

"You would think they would have the clout to negotiate significant rate reductions on their own," said Ms. Brown. "It's through collaboration that you can achieve the greatest success."

The coalition serves the whole state. Although it does maintain advisory committees of managed care plan medical directors and other providers, it does not allow health care employers on its board. The coalition's increasing emphasis on quality led it last year to create a unique Internet Web site to supply member companies' employees health plan information and managed care report cards.

The PBGH continues to pursue outcomes initiatives in asthma, breast cancer, Caesarean sections, perinatal mortality and coronary artery bypass graft mortality.

The difference in influence between the coalitions in California and New York, and all assertive and slow-moving employer alliances, lies in the desire of local executives to undertake collective action, said Kenneth R. Jacobsen, senior vp and national health practice leader for benefit consultant The Segal Co. in Atlanta.

Mr. Jacobsen, who until recently was president of the Georgia Business Forum on Health, a statewide alliance of business health coalitions, said the history of a corporate community plays a big part in determining present attitudes on joint purchasing or quality initiatives. "It's regional, it's local, it's cultural," said Mr. Jacobsen, arguing that the one common element to all effective coalitions is CEOs in member companies who are strong leaders and willing to act in concert.

Most employers don't act that way instinctively, he said, and the very large employers often think they don't need to join a coalition. The result, he said, is a lot of relatively weak coalitions dotting the map.

But like Mr. Sullivan of the NBCH, Mr. Jacobsen predicted rising managed health care costs could give coalitions marked new appeal.

A study last year by the Washington-based Economic and Social Research Institute found coalitions with purchasing programs often have achieved savings for members, though how long such savings can be sustained is not yet known. But many employers have simply not tried to capture the savings at all and have fallen into a complacency because of the lack of high health care inflation, said Jack A. Meyer, president of the institute and a health economist.

"I do believe costs will rise again," Mr. Meyer said. "I think this sense of euphoria, almost, will dissipate and reality will set in."