Employers Team with Colorado to Negotiate Better Health Care

(Bloomberg) -- Public employers in Colorado are teaming up with national companies to jointly purchase medical care through a new buying group that could become a blueprint for employers in other states seeking more bang for their health-care bucks.

The local employers will join with the national Purchaser Business Group on Health, a coalition of some of the country’s largest companies including Walmart Inc. and Boeing Co. PBGH will help identify high-quality medical providers in Colorado. PBGH members with employees in the state can opt in to the contracts that the Colorado Purchasing Alliance negotiates.

U.S. employers and their workers spend more than $1 trillion each year on medical care, with a typical family premium costing a combined $21,000 annually for employer and employee. Companies’ long-brewing discontent over a costly system that often delivers low-quality care is driving new attempts to change it.

That requires playing a bigger role in steering all those health-care dollars to the best providers, said Robert Smith, executive director of the Colorado Business Group on Health.

Buying Power

“Employers aren’t purchasing care. They’re passively paying for it,” Smith said. “We need to proactively purchase it.”

An affiliate of Smith’s group, called the Colorado Purchasing Alliance, is bringing together 11 local employers, including the state government, to muster their joint buying power in contract negotiations with hospitals and doctors.

The alliance will initially focus on select types of care that are often among employers’ highest expenses, including cancer, maternity and musculoskeletal care, such as treatments for back pain as well as joint replacements. It also aims to contract with top primary care physicians.

The groups called it a first-of-its-kind collaboration between national companies and local employers, and Colorado Gov. Jared Polis said in a statement that the alliance is “clear example of how we can work together to save people money on health care.”

Colorado has been a testing ground for innovative approaches to buying health care before. A purchasing group formed in 2019 called Peak Health Alliance unites employers in some parts of the Rocky Mountains that had long faced high health-care costs. The arrangement helped drive some insurance premiums down by as much as 47% in its first year.

In the U.S. health-care market, there’s a wide variation in quality and price, and the highest cost care isn’t necessarily the best. Employers say aggregating their buying power can help steer money to the best quality health-care providers that deliver superior value. Cost savings may follow by reducing needless surgeries or hospital readmissions, for example.

Pricey Procedures

National companies have for years directed patients to top medical centers known as centers of excellence for pricey procedures like joint replacements. More than half of large employers offered centers of excellence through their health plans, according to a survey last year from Willis Towers Watson, and PBGH helped develop one such program. That approach sometimes involves companies flying patients out of state to get care at nationally ranked centers. The group recently expanded its strategy to identify local networks of top providers based on quality measures and patient surveys.

In some ways, the new purchasing alliances are doing the work that employers already contract with insurance carriers to do: negotiate with medical providers on their behalf. It’s a reflection of how dissatisfied employers are with the current state of the market, said Elizabeth Mitchell, chief executive officer of PBGH.

Improving Coverage

“For decades these large employers have deferred to their health plans to buy the best care on their behalf,” she said. “Unfortunately we know that simply has not happened. The quality is variable at best, and they have been singularly unsuccessful at controlling prices.”

In another sign of discontent, JP Morgan Chase & Co. last month said it would start a new business aimed at improving coverage for its workers. And in New York, a large union benefit plan called the 32BJ Health Fund recently cut ties with NewYork-Presbyterian, one of the city’s largest health systems, over pricing.

“There seems to be a shift where employers are simply ready to take this on themselves since the industry is not,” Mitchell said.

Local Alliances

But health care is a local service, and even the biggest national employers frequently make up just a tiny sliver of the buyers in any given local market. Local alliances can change that dynamic, bundling the purchasing power among like-minded health groups. In addition to state employees, the Colorado Purchasing Alliance will include employees of the city and county of Denver, school districts and other mostly public employers.

In Colorado, Smith said the combined group of employers would have about 120,000 employees, or roughly a quarter million people, covered on their health plans when family members are included. That’s roughly 4% of the state’s population, or about 8% of those with employer coverage. All the members of the alliance are self-insured, meaning that they bear the financial risk of their employees’ medical costs directly. (Employees in Kaiser Permanente plans, which are fully insured, are excluded.)

Member Incentives

The Colorado Purchasing Alliance plans to eventually expand to other types of care and grow its membership to half a million, with more private sector employers joining, Smith said.

While the contracts with providers will be negotiated jointly, each health plan will still decide how to shape the benefits for their members. For example, some might offer incentives for members to get care at centers of excellence, while others could mandate it.

In Larimer County, which includes Fort Collins, Jennifer Whitener had tried to cut similar deals with hospitals on behalf of the 3,500-member county health plan she manages. Despite spending $25 million a year, the group found it had little leverage to negotiate, she said.

“As our own little self-funded plan, we have met with local health-care providers and tried to do this on our own and not been successful,” she said. “There’s no real motivation for them to cut their profit streams.”

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