Milbank Memorial Fund


Value Purchasers in Health Care:
Seven Case Studies


September 2001

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Table of Contents

Foreword
Acknowledgments
Value Purchasers in Health Care: Pioneers or Don Quixotes?

David A. Kindig

The Central Florida Health Care Coalition: Using Data to Empower
Purchasers

Direct Contracting in the Twin Cities: A Viable Health Care
Purchasing Strategy for the 21st Century?

Bringing Good Things to Life: GE's Approach to Improving Health
Care Quality

Health Care Purchasing for Small Employers in Colorado:
Defining Value as Affordable Choice

How Massachusetts Medicaid Uses Its Purchasing Muscle to
Improve Health Care

The Military Health System: Implementing a Vision for Value
Medicare's Attempts at Value-Based Purchasing: Challenges
and Opportunities




Foreword

Leaders in the public and private sectors accord high priority to getting the best health care for the best price for the people for whom their organizations purchase services. Many of these organizations are using systematic knowledge, strategies, and techniques they call value purchasing as an alternative to exhortation, competition, or regulation in their relationships with health plans and provider organizations.

The Milbank Memorial Fund commissioned the case studies in this report in order to communicate to a broad audience what seven very different organizations have accomplished through value purchasing and what they regard as opportunities for and impediments to further progress. These organizations are General Electric, purchasing coalitions of employers in Central Florida, Denver, and Minneapolis—St. Paul, Massachusetts Medicaid, and two federal health programs, Medicare and the TRICARE program of the Department of Defense.

Leaders of these organizations facilitated the case writers' access to colleagues and documents, reviewed several drafts of each case and draft findings from the cases, and participated in a daylong discussion of the report. At the end of this meeting they agreed on recommendations for action to encourage other organizations to make greater use of the methods of value purchasing. These persons are listed in the Acknowledgments, along with others who reviewed the cases and findings.

David Kindig, a program officer of the Fund, organized and led the project. He developed the findings and then incorporated the recommendations in an essay that introduces the report. Mary Darby, Janet Firshein, and Linda Loranger of Burness Communications wrote the cases, supervised by Kindig and Andy Burness.

Daniel M. Fox
President

Samuel L. Milbank
Chairman

Acknowledgments

The following leaders of the seven organizations and other experts met in October 2000 to discuss the findings from the cases and make recommendations for next steps. They are listed in the positions they held at the time of their participation.

John R. Aguilar, Captain, Medical Corps, U.S. Navy; Robert Berenson, Director, Center for Health Plans and Providers, Health Care Financing Administration; Becky Cherney, President and Chief Executive Officer, Central Florida Health Care Coalition; Jeremiah Cole, Director, Planning and Development, Division of Medical Assistance, Massachusetts Executive Office of Health and Human Services; Irene Fraser, Director, Center for Organization and Delivery Studies, Agency for Healthcare Research and Quality; Robert S. Galvin, Director, Corporate Health Care and Medical Programs; General Electric Company; Clarion E. Johnson, Medical Director, ExxonMobil Company USA; Patricia MacTaggart, Director, Quality and Performance Management, Center for Medicaid and State Operations, Health Care Financing Administration; Tom Rockers, Chief Executive Officer, The Alliance; H. James Sears, Executive Director, TRICARE Management Activity; Cathy Van Doren, Director of Managed Care, The Alliance; Steve Wetzell, Executive Director, Buyers Health Care Action Group.

The following persons reviewed this report in draft. They are listed in the positions they held at the time of their participation.

Michael H. Bailit, President, Bailit Health Purchasing; Robert Brook, Director, Health Care Sciences Program, RAND; Lee Greenfield, Principal Administrative Assistant, Hennepin County Health and Human Services Policy Center, Minnesota; George J. Isham, Medical Director, Health Partners; John H. James, Chief Executive, Kensington & Chelsea and Westminister Health Authority, U.K.; James R. Knickman, Vice President, The Robert Wood Johnson Foundation; Ed Martin, Senior Vice President, Enterprise and Health Solutions Sectors; Arnold Milstein, Managing Director, Health and Welfare Practice, William M. Mercer, Inc.; Jim Mortimer, President, Midwest Business Group on Health; Lee Newcomer, Executive Vice President and Chief Medical Officer, Vivius; Sally K. Richardson, Associate Vice President and Executive Director, Center for Healthcare Policy and Research, West Virginia University; Charles H. Roadman II, President and CEO, American Health Care Association; Bruce Vladeck, Professor of Health Policy and Senior Vice President for Policy, The Mount Sinai Medical Center.

Value Purchasers in Health Care: Pioneers or Don Quixotes?
David A. Kindig

At the turn of the century, health care value purchasing in the United States is a young, diverse, and growing movement in which both the private and public sectors have invested considerable financial resources and human energy. Leaders of these purchasing initiatives hope to accomplish through a variety of strategies what unmanaged market forces and regulation have failed to do: maximize the benefits of our health care system at a reasonable cost.

That is a tall order indeed. And although substantial inroads have been made, clearly a great deal of work remains to be done.

In an effort to probe beneath the surface of the value purchasing movement, the Milbank Memorial Fund commissioned seven case studies of what has come to be called value purchasing. The Fund's goal was to document the experiences of these initiatives in case study reports and to identify crosscutting themes and lessons that could be useful to future purchasing efforts.

These studies are based on interviews conducted at the seven sites from mid–1999 to mid–2000. The initiatives described in this report are:

Value purchasing is defined in this report as an organized attempt by a private- or public-sector purchaser to ensure quality and to improve health outcomes, as well as negotiating prices, as an explicit part of its health care buying strategy. In simplest terms, value purchasing means "getting the best care for the best price." Quality encompasses not only those aspects of service quality that are frequently reflected in customer satisfaction measures but also technical or clinical quality, for which a multitude of indicators and measures have been developed. These definitions are similar to those in Theory and Reality of Value Based Purchasing: Lessons from the Pioneers (AHCPR 1997). This report defined the concept of value-based purchasing to be "that buyers should hold providers of health care accountable for both cost and quality of care," in contrast to more limited efforts to "negotiate price discounts, which reduce costs but do little to ensure that quality of care is improved."

Findings

Following are the major crosscutting lessons and findings I drew from the experiences of the seven diverse initiatives that we examined for this project, as well as from selectively reported findings and opinions of leading researchers and analysts, where relevant. Participants in a meeting of the principals of the organizations that are the subjects of the case studies (described in more detail below) reviewed, improved, and concurred with these findings.

1. During the past decade, value purchasing pioneers have made significant progress in developing and implementing strategies aimed at improving health care quality and efficiency.

Examples from our case studies include the following:

  • After nearly 15 years of using data to drive provider and plan improvement, CFHCC in Orlando is now on the point of launching a unique pay-for-performance model that could revolutionize health care purchasing.
  • In Minnesota, BHCAG's efforts to create a system in which providers compete on price and customer satisfaction scores has resulted in some migration of beneficiaries to higher-performing care systems.
  • GE has made performance criteria a fact of life for contracting health plans, which are at risk for a significant portion of their administrative fees if they fail to meet agreed-upon improvements.
  • In Denver, The Alliance has provided choice at reasonable price to Colorado small businesses.
  • In Massachusetts, the Medicaid program has incorporated quality standards and improvement goals into its contracting procedures.
  • Medicare has been instrumental in the development and implementation of important new measurement instruments, like the Consumer Assessment of Health Plans Survey (CAHPS) for both fee-for-service and managed care.
  • DoD is still in the early stages of its reengineering efforts, but top health care administrators there appear to have fully embraced the tenets of population health and outcomes improvement.

These experiences largely document successes for the value purchasing movement as well as the individual organizations. However, these are carefully selected examples representing different organizational types and extent of experience. The extent of activity and accomplishment in other settings cannot be estimated; almost by definition, there will be much less than seen in pioneering and more experienced organizations such as the ones we studied and other similar substantial efforts.

Leadership is critical to the success of these initiatives, and the energy and commitment that the principals at all seven sites brought to their efforts were impressive. In Orlando, Becky Cherney, who heads CFHCC, noted that "the number one reason why coalitions fold up is that the leader leaves." She recommended developing a training program at the national level so that fledgling or struggling initiatives can benefit from the experiences of others.

2. Despite this activity and accomplishment, there is no standard conceptual or operational definition of health care value.

Typically, definitions of value center on some relationship between the cost of care and the quality or outcomes of care. But it appears that value may be in the eyes of the beholder. Purchasers and consumers, those in the public or private sector, and health plans or providers may approach this concept differently. "Our philosophy is that you inform [consumers] as much as possible and then let them buy according to their value system," said David Wessner, president and CEO of Health System Minnesota. Holding with the more traditional view, GE's Robert Galvin described value as "the highest quality at the most competitive price."

But Alliance CEO Tom Rockers had a more market-based perspective. "Every market is driven by an underlying premise," he said. In Denver, where small businesses form the overwhelming majority of employers, that premise is choice of plans, he asserted. Those purchasers would like to have quality, but choice and cost are more important factors in their equation for value. In keeping with DoD's enthusiasm for population health tenets, Captain John Aguilar believes that value means providing "the right interventions at the right time for the right patient."

A major barrier to reaching consensus on a definition for value is the lack of consensus on a definition for quality. Literally thousands of outcomes measures, indicators of care, and performance benchmarks have been developed to quantify and compare health care quality. The Health Plan Employer Data and Information Set (HEDIS) has become an industry standard in both the public and private sectors, and in consumer and other mass market publications. Its acceptance derives in large part from its standardization and audit procedures. Also notable are the outcome-focused modules that the Foundation for Accountability (FACCT) has produced. The current efforts of the Institute of Medicine and the Leapfrog Group (a coalition of 60 major private and public purchasers) to create incentives for reducing medical errors is an important initiative in technical quality.

Still, many stakeholders prefer to evaluate quality in terms of service and customer satisfaction, which are relatively easy to understand and measure, while others focus on the more elusive technical and clinical aspects of quality. It is still not clear how these differing views may best be balanced, but both will need to be included in future comprehensive measures of value.

Even cost, the other major component in the traditional definition of value, is not as clear-cut a concept as it may appear. Numerous questions relate to cost. For example, what should a purchaser reasonably expect to pay per beneficiary for a defined benefit package? Does value purchasing imply lower absolute costs for health care services or a willingness on the part of the purchaser to accept some standard rate of increase? What are the relative costs of different levels of quality? How do you measure the costs of primary preventive interventions?

The complexity of health care and health care benefits and the presence of multiple stakeholders is certainly one reason why different definitions of value exist. For an emerging field, such wide variation in the underlying concept poses challenges to public understanding and to consistency in measuring and evaluating the effectiveness of the efforts. However, in each of the initiatives we studied, most stakeholders were able to come to some consensus on value that was tailored to their specific purposes. Nonetheless, it would be useful to have greater clarification about what is meant by value or a typology of different value definitions, particularly if work is to continue in developing standard measurements and incentive strategies based on value.

3. Most value purchasing activity is targeted at reducing costs and to some degree improving customer satisfaction, with mixed attention to technical quality or outcomes.

Given this country's enormous expenditures on health care—more than $1 trillion a year—it is hardly surprising that private- and public-sector purchasers are preoccupied with reducing health care expenditures. Businesses see these costs as a threat to their profitability, and in the public sector, high costs cut into other needed investments. In Denver, large employers were instrumental in launching The Alliance, largely because they wanted to prevent cost-shifting from small businesses. One Denver employer, Susan Alt, notes that even consumers are more interested in how premium costs stack up among competing health plans than in quality.

As discussed above, cost is also easier to approach than quality. Purchasers know what costs means to them; they know how to measure and evaluate costs; and they can get data on costs much more readily than they can on quality measures, which remain somewhat amorphous to them. This partly explains why a review of private-sector purchasers and coalitions thought to be leaders in the value purchasing arena found that only a "limited number" were acting in a "bold and innovative manner" to improve quality, with a few "cautious first-step dabblers" (AHCPR 1997). The majority, however, were doing virtually nothing to incorporate quality considerations into their purchasing activities. Other surveys have documented the extent to which information about quality and outcomes is sought by public- and private-sector purchasers, but with quite limited evidence regarding its effectiveness in the purchasing process (Kaye and Bailit 1999; Landon and Epstein 1999; Fraser, McNamara, Lehman, et al 1999; Milbank Memorial Fund 2000).

With premiums rising at double-digit levels after several years of zero to single-digit growth, purchaser interest in costs may increase accordingly, at the expense of quality. Jeremiah Cole of the Massachusetts DMA pointed out that concerns about escalating health care costs are diverting human energy and resources from Medicaid's efforts to improve quality. In response to this latest premium trend, some employers have expressed interest in moving from a defined set of health care benefits toward simply a defined financial contribution, in order to increase employee awareness of the cost of the benefit or to shift responsibility for health care purchasing onto the shoulders of the individual consumer. Others, such as GE, have expressed greater interest in consumer empowerment. These employers believe that supplying consumers with comparative information will enable them to better select among competing plans or providers. Still others argue that new pressures on costs will only push the value purchasing movement forward.

4. The "business case for quality" has not been made.

This finding primarily relates to the impact of healthier workers on employer productivity. There are some true believers out there, but they are few and far between. DoD, for example, is fervent in its embrace of population health and quality improvement principles, which, MHS leaders believe, hold the key to their goals of maximizing health and containing costs. "We're all convinced that this is clearly the most powerful money saver we have," stated H. James T. Sears, M.D., executive director of TRICARE Management Activity (TMA). In Orlando, a consistent message and strong leadership from CFHCC over the course of a decade seem to have resulted in a community-wide belief that better quality costs less. Certainly all of CFHCC's members appear to buy into this philosophy. In Minnesota, too, several employers said they were convinced of the value of quality and its importance in ensuring worker productivity.

But even these advocates say it is difficult to come up with demonstrable proof that what they believe is true. Terry Koves, director of compensation and benefits for Land O' Lakes in Minnesota, which participates in BHCAG, said his company lacks the resources to collect and assess clinical data on quality. And he stated that even if those resources were available, he and his colleagues would be at a loss as to what to do with such data. Said Alt in Denver: "It is very difficult, if not impossible, to make any direct correlation between clinical quality of care and the package of care provided by any specific carrier, and worker productivity. Even the large employers that have done studies that tried to do this have found it quite difficult to quantify."

Few employers are interested in exploring a possible connection between health care, quality of care, and worker productivity—and those that are interested generally want hard data. "Most employers take quality for granted," said Bill Lindsey, an employee benefits consultant in Denver. "They don't have a sense that there is really a big difference from facility to facility in terms of health care quality and outcome, and they are skeptical of the measurement tools that are out there."

This is certainly in part because of a lack of clearcut research evidence; many believe that the empiric literature in this area is quite weak and underdeveloped. James Mortimer of the Midwest Business Group in Health has observed that "we need objective and quantitative evaluation of such efforts to show the next echelon of purchasers outcome results. . . . [We] need clear evidence that quality varies and that purchasers are even buying harmful care to activate the passive purchasers to become value purchasers" (Mortimer 2001).

Some information is being developed for some specific conditions such as depression and back pain, but, in general, analysis rarely evaluates anything beyond absenteeism. One investigator has recently begun important work on "presenteeism" (Burton and Conti 1999), meaning the productivity of those at work, but most employers do not keep such data. The Leapfrog Group is attempting to use empiric evidence, such as data on the impact of computerized physician medication-ordering systems and data on hospital volume, to assess the expertise of providers that perform highly specialized medical procedures. These efforts, as well as those designed to standardize outcome measurements, will be critical in retaining a quality and outcomes component in value purchasing (Chassin 1999; Bodenheimer 1999).

5. We do not know how to structure effective incentive and penalty mechanisms to ensure or improve quality.

Several of the initiatives we studied explored the use of incentives and penalties, with mixed results. For example, GE puts 10 to 25 percent of a plan's administrative fee at risk for performance; better performance results in higher payment, and failure to perform can cost a plan millions of dollars. In 1999, one plan incurred $7 million in penalty payments because of poor performance. In Denver, The Alliance's CHIP experimented with a benchmark program that awarded a bonus to the best overall plan performer. But plans intensely disliked the program, and The Alliance ultimately dropped its use of financial incentives altogether.

In Minnesota, care systems that contract with BHCAG compete for the coalition's annual Quality Award, which carries with it a $100,000 cash award for the system with the best quality improvement program. In Massachusetts Medicaid, where little can be done with payment levels in managed care contracts due to regulatory issues, increasing the volume of patients assigned seemed to be effective for one major provider: "We take their quality improvement goals seriously. . . . [If] We get high scores, we get more members. We want to grow our membership, so we have a built-in incentive to do well." DoD officials are considering whether they can tie improvements in clinical quality to certain promotion decisions.

The success of using financial incentives to improve quality was largely determined by purchasers' clout with their plans or providers. GE has the muscle it needs to play hardball with its plans; in Denver, the CHIP does not. BHCAG has a similar problem in the Twin Cities market and is limited in its ability to collect medical record data from care systems; thus the Quality Awards program is a good way to motivate care systems to take more initiative for improving care.

A core ambiguity running through many efforts to date is the willingness of health plans to translate quality incentives from purchasers into effective quality incentives for providers. As of this writing, CFHCC in Florida is developing plans to launch a unique pay-for-performance model that could help advance our knowledge and understanding of how best to design and implement such mechanisms. But several reviewers noted that the amounts most employers are currently allocating to measuring or rewarding quality constitute a minuscule part of health care budgets and are not sufficient to create strong incentives. GE's Galvin has written that "purchasers must take their market position seriously and work with and demand from health plans a financing structure that rewards high-quality provider organizations" (Galvin 1999).

6. Multiple reporting requirements and concerns about data credibility continue to be issues for providers and plans.

The need for collaborative data collection and reporting is clear, but that is more easily said than done. Distrust among different stakeholders, doubts about risk adjustment methods, and fears related to patient privacy are significant barriers to this effort. There is considerable mistrust of information sources, certainly when information comes from an organization with vested interests in the results. Small employers particularly are "skeptical of small numbers, and don't trust insurance companies providing information" (Nelson, Alday, and Follick 2000).

In Orlando, CFHCC appears to have successfully established itself as a trustworthy source of data and information with health care providers and purchasers. In Minnesota, BHCAG was instrumental with others in helping create the Data Institute, a public-private partnership that is trying to position itself as a neutral, single source of clinical quality and outcomes information for Minnesotans. The Data Institute currently contracts with BHCAG, the state Department of Employee Relations, and the Minnesota Department of Human Services to conduct an annual BHCAG patient survey. Medicare is one of the co-founders of the National Quality Forum, an attempt to standardize measures and reporting systems to reduce the burden on plans and individual providers. Beneath the current layer of issues impeding the use of claims and enrollment data to judge quality lies an even more formidable challenge of sufficiently expanding routinely collected data to permit more adequate quality assessment.

7. Public-sector purchasers are more limited in what they can do with respect to value purchasing than their private-sector counterparts.

Public purchasers face unique political, legislative, and bureaucratic constraints. Of the three public-sector initiatives that we examined, Massachusetts Medicaid has made the clearest progress and has even been able to advance quality improvement in the private sector as well. Rather than trying to regulate quality, the state tries to manage it using contractual performance criteria that hold vendors accountable for specific quality indicators. One Massachusetts public executive remarked that public efforts were more effective than private ones partly because he "saw the governor and key legislators weekly, while a private health benefits manager may not even see the CEO monthly." Indeed, Massachusetts Medicaid has shown that with strong leadership, clear objectives, a long-term, collaborative view, and an understanding of market forces, the public sector can make a difference in health care quality.

DoD has many of these advantages. It is, however, trying to reengineer a health care program that serves many more people: approximately 8.2 million, compared to the 900,000 beneficiaries served by Massachusetts Medicaid. And unlike most Medicaid programs, DoD's TRICARE program is under intense political pressure to keep its customers happy, even if doing so jeopardizes efforts to contain costs. For example, in October 2001, DoD will have to extend and expand benefits for retirees over age 65 (including a prescription drug benefit). "The problem is that the whole Department of Defense budget is considered a discretionary budget within the federal government," explained Paul Kearns, of TRICARE's Resource Management office. "It's not an entitlement, like Medicare or Social Security. But [the Military Health System] is an entitlement program within a discretionary budget." Nevertheless, DoD has demonstrated that it is serious about population health and outcomes management, and TRICARE officials point to "pockets of excellence" that they hope to duplicate throughout the MHS.

The federal Health Care Financing Administration (HCFA, renamed the Centers for Medicare & Medicaid Services, or CMS, in June 2001), which administers Medicare, is probably the most fettered of the public agencies that we studied. Because Medicare is a public entitlement that provides both insurance and health services for 38 million beneficiaries, it is accountable to many masters, including Congress, beneficiaries and their advocates, and about 1 million providers and suppliers that participate in the program. It makes major investments in quality protection and improvement efforts. Yet the requirement to not be accused of arbitrary decisions so understandably permeates the HCFA culture that transitioning from a "pay the claims" environment to that of a purchaser is difficult. Although Medicare ought to be the 800-pound gorilla of health care purchasing, political and bureaucratic realities prevent HCFA from accomplishing much of what it is seeking to do and from raising its health care purchasing strategies to a higher, more competitive level.

8. Few purchasers command enough volume on their own within a given market to be effective value purchasers.

GE is a rare example of a large corporation that has sufficient leverage to demand some accountability from its health care contractors in a few locations. In Minnesota, BHCAG is acutely aware that it needs to increase its value purchasing market share from 10 percent to 50 percent if this strategy is to have a viable future. Lacking a "relatively substantial part of market share, you can't keep the [care] systems engaged," said Steve Wetzell, BHCAG's former executive director. Similarly, in Denver, the CHIP is trying to expand its enrollment levels from about 3 percent to 10 or 15 percent of the highly fragmented small group market. With that kind of enrollment, "we'd become an important customer" to insurers, said Rockers.

Some of these problems could probably be overcome with greater collaboration between the public and private sectors at the municipal or state level, but so far little collaboration has developed. The active, unfettered participation of Medicare would add tremendous momentum as well, but, as noted, HCFA in many respects has its hands tied. Some collaboration is underway, mainly in the area of patient safety measurement and standardization, in which the Leapfrog Group, the National Business Coalition on Health, and HCFA are involved.

9.The health plan as the organizational level for value purchasing has significant limitations.

Purchasers often contract with health plans, but many providers have relationships with multiple plans. This limits the opportunity for purchasers to identify and reward high-quality and lower-cost providers. BHCAG's approach to dealing with this problem is to contract directly with care systems. In addition, BHCAG stipulates that individual primary care providers can contract with only one care system, to ensure differentiation among systems and meaningful measures of quality. But measuring quality at the provider level is not without challenges of its own, and BHCAG leaders have been severely hampered by the small numbers of patients that a given system represents and by state laws that limit their ability to collect clinical data.

In Orlando, Cherney said that "physicians are driven to be good. . . . [I]f the data show for some reason they aren't, then they want to know why." This belief has led CFHCC to launch a pay-for-performance model that will pay higher fees to physicians who deliver the best clinical outcomes. CFHCC leaders are enthusiastic about the idea, and it will be interesting to see how it fares in implementation.

A leading quality-of-care researcher has observed that there is "considerable doubt about the most effective and appropriate level for reporting performance data and degree of risk adjustment required to achieve balance of cost-effectiveness and fairness to providers" and that the "use of public performance data by consumers and purchasers for regulatory purposes will remain less important than use of data as catalyst for organizational performance at the organizational provider level" (Marshall, Shekelle, Leatherman, et al. 2000).

Another level of disconnect has to do with decision-making and the interests of purchasers versus those of consumers. Most purchasers contract with health plans, not directly with providers. Consumers who have a choice of health plans obviously have a decision to make at that level as well, but consumers tend to focus more on their relationships with their providers than with their insurers. Numerous moves are underway to better educate consumers so that they can make more informed decisions when selecting both health plans and health care providers. HCFA, for example, has a Medicare beneficiary education program. In the private sector, GE is refocusing its value purchasing efforts around consumer empowerment and is relying on computer-based technologies to educate and inform employees. While performance reporting that is dominated by individual providers is more meaningful to consumers and free of the obscuring effect of merging data from multiple providers, it faces major cost and interplan collaboration hurdles.

10. Professional resistance to comparisons based on quality or costs can be a serious obstacle to purchasing initiatives.

This has been true since HCFA launched its hospital mortality reports in the 1980s. Measuring, comparing, and publicly reporting on clinical quality at the health plan or provider level is inherently controversial. For the people who are under the microscope, the stakes are high, both financially and professionally; when sufficiently threatened, they may very well take action to protect their interests. In Denver, for example, a health data commission that initially collected information on hospitals was dissolved by the state legislature when the commission tried to expand its purview to health insurers, who opposed that plan. As mentioned earlier, the CHIP's efforts in Denver to reward contracting plans that demonstrated superior quality failed because the plans objected to the financial commitments required of them. Rockers' take on this was that "change will never come from within the health care system." He believes it must come from outside.

A recent study of the use and effectiveness of report cards stated that "most providers would probably prefer not to be subject to such comparisons, and if the opportunity arises, some will probably try to weaken performance assessment efforts or incentive programs" (Wicks, Meyers, Ryboyski, et al. 1999). Another researcher stated that "vested business interests may feel threatened by formal evaluation of an area in which there is considerable business potential." In a recent New York Times article on Medicare reform efforts, a senior AARP official was quoted as saying that "people are making so much money off the health care system that any effort to change it runs into very well financed opposition." A recent Harvard Business Review article presented evidence that cheaper, effective innovations in medical technology have difficulty finding venture capital funding since they may challenge more expensive and profitable existing products (Christensen, Bohmer, and Kenagy 2000). As benefits and financing from both public and private sources have increased, academic observers have also chronicled how American physicians and hospitals have usually been quite successful in avoiding significant regulation and performance monitoring.

Yet some initiatives that have sought to work collaboratively with health plans and providers and to address their issues have made progress. At this point, CFHCC does not publicly release comparative data, although it does make data available to purchaser members. Under its new "pay-for-performance" model, providers will be grouped into one of three "tiers" of quality, and that information will be made public. What seems to have worked well for CFHCC is its focus on producing data that helps providers improve quality themselves. "We are just information brokers," said Cherney. "We get good information, we check it out, we give it to the physicians, and they make improvements."

It is possible, too, that advances in measurement, standardization, and risk adjustment eventually will make these types of initiatives more palatable to the industry. In addition, if the consumer education movement gains momentum, plans, providers, and purchasers alike may have to respond to new demands by consumers for credible, comparative information on quality.

11. Value purchasing may be enhanced by "pay-for-performance" developments in other sectors.

While not specifically addressed in these case studies, this parallel movement could help create a general climate that would help in these health care efforts. This is currently the case with regard to education, with multiple efforts at outcomes measurement and standardized testing, and the introduction of financial rewards for positive performance. Such efforts are not without controversy—over the nature of the standards, teaching to the measures, and even fraud when incentives are high. But the understanding that we need to achieve outcomes from what we put into the education system, as well as into environmental policy, has growing acceptance, and this may spill over into other areas of public concern, such as health care.

12. Appreciation of the nonmedical determinants of health and the role that they play in population health is limited.

This is not surprising, in view of the fact that medical care delivery is the primary focus of health care purchasing. On the other hand, there is increasing general recognition of the role of multiple determinants (such as socioeconomic status, the environment, and lifestyle choices) in producing health outcomes. Although no single organization or sector of society can take full responsibility for these outcomes, someone could take the lead in trying to improve them. We saw two examples in our case studies. In Florida, the "Open Airways for Schools" program implemented at 42 schools in six counties is teaching children with asthma and their parents how to better manage this condition. The program is credited with helping to raise school attendance by 19 percent and with helping asthmatic students improve their grades by 8 percent. The Air Force Medical Service reduced rising suicide rates in its active-duty population after putting together an "integrated product team" that used a coordinated, nonmedical approach involving medical personnel, security officers, and counselors. This successful approach is being deployed within other areas of the MHS.

These examples reflect a commitment to a broader, more holistic definition of health than is frequently seen. While it is not reasonable to expect the medical care sector to assume full responsibility for these broader determinants of health, a commitment to value purchasing in its broadest definition from a sector with such extensive resources and power presents great opportunity, if not responsibility, for leadership and influence.

Next Steps

The principals whose experiences are documented in these seven case studies, along with the case writers and several other experts, met in October 2000, to review the evidence and draw conclusions that might be useful to other public and private policymakers. After reviewing the major lessons and findings from this project, they made the following recommendations as "next steps" that could be taken by public and private organizations interested in advancing the value purchasing movement.

The most enthusiasm was expressed for an effort to stimulate and provide financial assistance for demonstration projects to facilitate collaboration and coordination among public and private purchasers in several local markets. The desired result would be consensus on common approaches to value purchasing, going beyond the current "three-way" discussion on common approaches to patient safety by HCFA, Leapfrog, and the National Business Coalition on Health. This effort could begin by reviewing the Midwest Business Coalition document on public-private collaboration in purchasing. It might also lead to the development of standard definitions or concepts of value, perhaps from the perspective of different stakeholders, such as consumers, providers, and purchasers.

Other suggestions included the following:

  • Stimulate increased public and private funding on research regarding the business case for quality, clearly demonstrating its impact on productivity and other valuable outcomes. Determine the "proof of impact."
  • Advocate for a national effort to counter the myth that health care quality is not a problem, and increase awareness of variation in quality and patient outcomes.
  • Assist regional and public medical schools to become agents of change to improve health care value.
  • Assess the status of the "followers" in the value purchasing movement. How can the lessons of value purchasing be effectively disseminated to and adopted by those who are not pioneers in the movement?
  • Find ways to assure that information provided or marketed to consumers—such as that used to promote certain prescription drugs, plastic surgery, and alternative medicine—is accurate and appropriate. Find ways to correct misinformation, especially on the Internet. Find ways to engage consumers and to make complex information understandable.

Conclusion

Although medical care is not the only determinant of health, it is a critical one that represents substantial expenditures. Thus, harnessing the efforts of purchasers who are looking beyond their bottom lines to improve health care quality as well as efficiency is quite appealing, and according to the 1998 and 1999 Institute of Medicine reports, it is essential for conquering today's epidemic of quality failure.

The efforts described in these case studies demonstrate enormous energy and dedication on the part of purchasers and providers in various segments of the U.S. health care system. Some of the preliminary successes are inspiring: the migration of some Minnesota enrollees into lower-cost and higher-performing health systems; GE's business approach to improving health plan quality; enrollment gains for Massachusetts Medicaid plans that have better performance ratings; in Orlando, community-wide recognition that better quality saves money; and HCFA's rewarding of performance in treating congestive heart failure. These developments are positive and give weight to the view that, with more time and experience, value purchasing could be a significant driver for better health care in the United States.

But perhaps these pace-setting examples are merely outliers that reflect idiosyncratic environments, histories, and individual efforts. If that is true, it could be argued that only limited concrete progress has been made by the value purchasing movement, with most of the focus on the cost side of the equation and very little on quality and outcomes. If this is the case with the industry's leaders, what then is happening in the rest of the system, where presumably less attention is being paid to this issue? Perhaps the measurement challenges are so great and the value attached to outcomes and quality so limited that efforts such as these will remain marginal.

There is a third possible interpretation of these experiences: that these initiatives are still in their very early development and need more time to mature. Could a decade of improvements in measurement and standardization, combined with new lessons from additional performance improvement experiments, change the picture of value purchasing? Could the current success of the Institute of Medicine and Leapfrog coalition at bringing significant public attention to patient safety and medical errors spill over into other quality and outcome areas as well? Could a "tipping point" be achieved in which paying for health care performance becomes the norm? Could creative use of the Internet and advances in consumer education and reporting foster a new generation of consumers equipped to be their own value purchasers?

It is unclear whether or when the initiatives we studied will deliver the big improvements that we are all looking for. In the meantime, they are moving ahead. The challenge of producing significantly better health outcomes for the money we spend remains substantial. Value purchasing is in the early phases of development. Private and public policymakers could be embarking upon a decade of intense investment in refining, expanding, and disseminating best measurement and incentive practices, such as those illustrated here. Particularly compelling are opportunities for public and private collaboration to reduce fragmentation and consolidate value purchasing power in health care markets. At the same time, however, it is necessary to recognize and fully understand the barriers to value purchasing. Vast resources are being spent on health care. The seven case studies in this report exemplify the challenges of enhancing accountability for that spending.

References

AHCPR (Agency for Helath Care Policy and Research). 1997. Theory and Reality of Value Based Purchasing: Lessons from the Pioneers. AHCPR 98–0004. Rockville, Md.: Department of Health and Human Services.

Bodenheimer, T. 1999. The Movement for Improved Quality in Health Care. New England Journal of Medicine 340(6):488–92.

Burton, W., and D. Conti. 1999 The Real Measure of Productivity. Business and Health (November):34–6.

Chassin, M. 1999. Is Health Care Ready for Six Sigma Quality? Milbank Quarterly 76(4):565–91.

Christensen, C., R. Bohmer, and J. Kenagy. 2000. Will Disruptive Innovations Cure Health Care? Harvard Business Review (September–October):102–12.

Fraser, I., P. McNamara, G. Lehman, et al. 1999. The Pursuit of Quality by Business Coalitions: A National Survey. Health Affairs 18(6):158–65.

Galvin, R. 1999. An Employer's View of the U.S. Health Care Market. Health Affairs 18(6):166–70.

Kaye, N., and M. Bailit. 1999. Innovations in Payment Strategies to Improve Plan Performance. Portland, Me: National Academy for State Health Policy.

Landon, B., and A. Epstein. 1999. Quality Management Practices in Medicaid Managed Care. Journal of the American Medical Association 282(18):1769–75.

Marshall, M., P. Shekelle, S. Leatherman, and R. Brook. 2000. The Public Release of Performance Data. Journal of the American Medical Association 283(14):1866–74.

Milbank Memorial Fund. 2000. Better Information, Better Outcomes? The Use of Health Technology Assessment and Clinical Effectiveness Data in Health Care Purchasing Decisions in the United Kingdom and the United States. New York.

Mortimer, J. 2001. Personal communication.

Nelson, D., S. Alday, and M. Follick. 2000. Teaching Small Employers to Buy Value. Business and Health (July/August):30–5.

Wicks, E., J. Meyer, L. Ryboyski, et al. 1999. Report on Report Cards: Initiatives of Health Coalitions and State Government Employers to Report on Health Plan Performance and Use Financial Incentives. Washington, D.C.: Economic and Social Research Institute.

The Central Florida Health Care Coalition:
Using Data to Empower Purchasers

Introduction

Created in 1984, the Central Florida Health Care Coalition (CFHCC) is one of the oldest and largest health care coalitions in the country. With hard data as its primary agent for driving change to improve health care quality and cost-effectiveness for its employer members, CFHCC has made significant differences in how health care in the Orlando market is delivered. According to its leaders, CFHCC has succeeded in garnering more than $300 million in savings at the hospital level as a result of its quality improvement initiatives. Examples they cite include:

  • A substantial reduction in the rate of cesarean sections performed in the community, from 36 percent in 1989 to 18 percent by 1998, well below the national average of 22 percent.
  • A dramatic improvement in the rate of kidney failure at area trauma centers to just 1 percent—again, far below the national average of 20 percent.
  • A simple procedural change in how instruments for hospital surgical trays are selected, resulting in dramatic savings.
  • Educational campaigns designed to show physicians more cost-effective methods for treating common illnesses like upper-respiratory infection.

Improving quality has always been at the core of CFHCC's goals. The organization's philosophy is simple: improving the health care delivery system is the only way to improve quality and contain costs. The Coalition operates on the premise that information drives change. And information, coupled with healthy professional competition among peers, can affect how health care is delivered. These changes, in turn, lead to cost savings.

"We are just information brokers," said Becky Cherney, president, CEO, and founder of CFHCC. "We get good information, we check it out, we give it to the physicians, and they make it [quality improvements] happen." According to Cherney, those who focus solely on curtailing health care costs are likely to always be fighting the same battle. Securing discounts and increasing co-pays merely shift costs without any real effect on the health care delivery system.

This case study reviews how and why the coalition was created, describes in detail how the coalition functions, offers insight into the impact it is having within the Orlando health care community, and details the Coalition's plans. The case study is based on several interviews with public and private employers, coalition members, and health system representatives involved with the Coalition, as well as interviews with Cherney and John B. Hanson, chairman of CFHCC and director of benefits for the Orange County Public Schools.

How the Coalition Started

Despite the Coalition's current focus on changing health care delivery practices, escalating costs supplied much of the initial impetus for creating CFHCC in 1984. At the time, the annual rate of increase for health care costs was in the double digits, and benefits managers found it difficult to determine what kind of value they were getting for their money. A group of benefits managers from 52 major employers in the region met to discuss their quality and cost concerns, and from there the Coalition was born.

The Coalition started with ten charter members. Today it comprises more than 124 major employers representing more than 1 million covered lives, about one-third of the employees in Orlando's commercial market. The Coalition is unique in that its members include both public and private entities with business interests that range from space technology to the world's most famous theme park to community schools and administration. Members of the Coalition include Orange County Public Schools, Walt Disney World, Universal Orlando, the City of Orlando, Lockheed Martin, and SPRINT—to name just a few.

The Coalition works with two large health care systems that have 14 hospitals in the Orlando area to improve health care delivery: Orlando Regional Healthcare and Florida Hospital Healthcare System. It also works with two smaller independent hospitals. In addition, ten health plans were assessed in a 1998 consumer survey initiated by the Coalition.

Although self-insurance is not a requirement for participation, nearly all CFHCC members are self-insured. Membership is not limited to employers: anyone who works in health care is welcome to join, but the major employers are the only ones with voting rights.

The Coalition started simply by looking systematically at hospital records. In the late 1980s, it moved to encouraging provider use of more sophisticated data-collection systems and has continued to expand its quality measurement programs ever since. According to Cherney, once the Coalition started obtaining data on certain medical procedures, members were shocked to see the disparity in care services provided. For the first time, physicians were able to see how they compared to their peers in providing care.

For example, physicians could compare themselves with their peers in terms of the number and type of lab tests they ordered for pneumonia and the effect it had on care. In another instance, members discovered there was a huge difference in the use of anticoagulants and the ordering of arterial blood gas studies and x-rays among physicians doing coronary artery bypass grafts.

Data provide the Coalition with leverage in the local health care market. "We all have the same objective: to control costs and provide quality care. That's what all of us want," said Sue Steck, director of benefits, payroll, and records for Universal Orlando. "By throwing our efforts together, we've been able to do that. You get the attention of the hospitals, in particular. None of us could do that isolated by ourselves. Being a Coalition member gives us that clout. They know they have to respond to us. They understand the power that sits around that table."

According to Beth Rudloff, director of case management with Orlando Regional Healthcare, the fact that the hospital system presents outcomes data to prominent employers is a strong motivator to continually improve outcomes. "We present information to the Coalition every six months. There are some indicators that need additional focus or show an opportunity to improve," said Rudloff. "When you are presenting this information to Disney or the government, you can't ignore it. We meet with medical staff and spend a lot of time trying to figure out what we need to focus on to improve patient care."

Companies have various reasons for joining the Coalition. In 1987, Hubbard Construction joined because it wanted better quality and administration from its health plan. At the time, the company's employees' biggest complaints centered on their group health insurance plan. Hubbard Construction turned to the Coalition for help in choosing a new plan. "We spend a lot of money on insurance," said Margaret H. Collins, personnel director for Hubbard, a heavy construction firm with 1,500 employees. "We joined the Coalition so that we would know what other people are doing, where they are, and how they are handling all these major problems we're having."

Collins also noted that the company was impressed to see procedural changes being implemented by both Florida Hospital and Orlando Regional Healthcare and their providers in response to data presented to the Coalition. She credited the Coalition with providing incentives for hospitals to focus on areas in which they could cut costs and improve quality.

Universal Orlando joined the Coalition to help raise the overall health care standard in the community. "I look at the Coalition from Universal's perspective—not as much what it can do for us as a company, but what we can help do for the community," said Steck. She believes that improving hospital procedures will help everyone in the community, and that is important in a tight labor market where everyone is vying for the same employees. In addition, like many large employers in central Florida, Universal Orlando feels a certain commitment to the surrounding community.

Although the reasons for joining are varied, Coalition members share the common goal of controlling health care costs while also providing quality health care. Members agree that the Coalition is helping to raise the level of quality health care offered in the central Florida region—not just the care provided to Coalition members' employees. If physicians improve the way they practice at area hospitals, then all patients benefit, not just those whose employers participate in the Coalition.

The Orlando Market

Orlando, with its amusement parks and ubiquitous entertainment billboards, is widely considered to be "anywhere" USA. Virtually every advertiser has a billboard in town. The area is home to an extremely sophisticated and competitive hospitality industry—including, but not limited to, Walt Disney World, Universal Orlando, and SeaWorld—that caters to tourists and locals alike. These organizations are major employers in an area that boasts an unemployment rate of just 2.6 percent. As a result, in addition to competing for tourist dollars, local businesses are also competing for employees. And strong health benefits packages have become key bargaining chips.

According to area business leaders, those bargaining chips are expected to become more valuable as tight labor market conditions continue. The Economic Development Commission of Mid-Florida estimates that Orlando, with a population of 1.5 million people, will be one of the nation's faster-growing areas through 2008. Starting in 2003, a Watson-Wyatt study predicts there will be approximately 30 percent fewer entrants into the workforce. "If you're paying about $50 to get into Disney, and there is no one there to run the teacups, then that's a problem," said Cherney. At least one employer, Universal Orlando, is considering offering health benefits to part-time employees as a way to draw new employees from its competitors' ranks.

Orlando also boosts a mature managed care market, with 65 percent managed care penetration. It is home to the two significant hospital systems noted earlier: Orlando Regional Healthcare and Florida Hospital Healthcare System. And virtually all of the major insurance carriers have a presence there.

The fact that CFHCC has been in successful operation for 17 years demonstrates that health care is a focus for the Orlando business community. Employers care about quality health care for several reasons:

  • As a way to draw new workers
  • To ensure that current workers remain viable and productive
  • As a way to offer a benefit back to the overall community

"Health benefits are important in hiring," said Collins, adding that current worker productivity is just as important. "If you can't hire more people, then worker productivity becomes a very important issue. We need to keep these people healthy." Investing in long-term wellness programs, however, is not always practical in a market where the workforce is extremely young, with a median age of 35.4, and transient.

How the Coalition Operates

Unlike many health care coalitions throughout the country, CFHCC does not attempt to negotiate price discounts on behalf of its members, although the Coalition plans to take that step in the near future. Instead, CFHCC has focused on improving health care by encouraging its providers to review data comparing physician, hospital, and plan performance in relation to specific conditions and procedures, such as cesarean-sections, open-heart surgery, and pediatric asthma. In this way, employers can see what they are getting for their money.

In addition, the Coalition measures consumer satisfaction with the Consumer Assessment of Health Plans Survey (CAHPS) and is attempting to measure outcomes in outpatient settings.

The Coalition uses three major data-collection and analysis tools—the outcomes measurement modules developed by CAHPS, and the MediQual/Atlas and MEDecision data-collection systems—to measure quality at the health plan, hospital, and group practice and physician levels. The Coalition uses all three systems in an attempt to balance clinical outcomes, satisfaction data, and cost information.

MediQual/Atlas, a data-collection system available for hospitals to use in trying to improve quality of care, is based on clinical findings and is severity-adjusted. Fifteen of CFHCC's hospitals use the system, allowing CFHCC to "compare apples to apples," and to unify standards among all its members. The system allows the Coalition to compare participating hospitals to others across the country, to determine how individual physicians measure up against their peers, and to provide information on charges per patient case. These data are then used to determine where improvements should be made and to track the effect of improvements being implemented.

Using these and other data systems, hospitals have developed a four-quadrant chart to show doctors how they compare to their peers in terms of length of stay and costs in relation to specific diagnostic-related groups (DRGs). The purpose is to help everyone improve on performance.

In addition, the data can call attention to specific practices that can improve quality. For instance, in 1997 providers noticed that the overall number of trauma center deaths from renal failure was at the norm, but that it varied among physicians. The data showed that the renal failure rate depended upon the amount of hydration given to trauma patients upon admission to the ICU. When all trauma patients were routinely hydrated, the renal failure rate dropped well below the national norm.

Orlando Regional Healthcare and its physicians take the Coalition and its goals seriously. As director of case management, Rudloff works directly with the business systems team leader to determine how they can use data systems to work with their physicians to improve outcomes and costs. "We are a very data-oriented organization that has been working on this for ten years altogether," said Rudloff. "What the Coalition has done for us is provide an incentive to continue down the same path. For example, Orlando Regional Healthcare focused on bypass surgery five years ago and improved cost and quality. They are looking at the data again today to see if additional improvements can be made."

Rudloff said the organization's data-collection efforts are part of a physician-driven process: physicians want to know how they are performing against their peers. The presentation of physician performance and profiling data is extremely important in gaining their attention and buy-in. "They want as many details as possible. They don't like to hear only that their costs are higher or lower. They want to know why," said Rudloff.

Orlando Regional uses the MediQual/Atlas system. But while the system is a good tool for global comparisons, it is not as useful for comparing local data, according to Rudloff. For example, Atlas can show a global charge per case but cannot break it down into individual lab tests or other charges that would tell the hospital system where reductions need to be made. If the hospital's charge per case for pneumonia were $1,000 more expensive than the norm, Atlas would not be able to show whether the drugs used were more expensive or if the hospital was ordering more tests than normal. As a result, Orlando Regional relies on three separate data-collection systems: Atlas, Fathom, and Explore. Orlando Regional provides information to its physicians on how they compare overall and gives them detailed data on variance from the norm. The physicians then meet to determine what actions to take to improve care.

Outpatient Survey

In addition to collecting inpatient data, the Coalition piloted a project to study outpatient data. The project was spurred by the documented fact that huge variations in medical care exist across different geographical sites. The Coalition developed a system to measure care in the office setting, providing data never available before, and a way to improve outcomes in outpatient settings.

The 18-month pilot project compared claims data provided by two large area employers: Orange County Public Schools and Universal Orlando. As part of the study, the Coalition identified the top reasons people went to visit a physician and collected data on charges per episode (see box).



The Coalition is using this information to show physicians the most cost-effective treatments for specific conditions. Cherney offered the example of treating for upper-respiratory infection. In one three-physician practice, surveyers found that when upper-respiratory infection was diagnosed, more than half of the time two of the three physicians would prescribe an antibiotic, even though the condition does not require such treatment; many times the patient insisted on getting an antibiotic even though it was not clinically necessary. The third physician had a much lower rate of prescribing antibiotics for the same condition. She would give her patients prescription antibiotics only by postdating the prescription by three days. If the symptoms persisted that long, it meant the patient had likely developed a secondary infection, which is treatable by antibiotics. She found most patients never needed the prescription and did not use it. Based on this information, the Coalition launched an education campaign—targeted at physicians and members—regarding treatment for colds.

CAHPS

The CFHCC also uses the CAHPS survey to measure patient satisfaction. CAHPS is the survey instrument used by the National Committee for Quality Assurance (NCQA) and the Medicare+Choice program. In 1998, 11 of the Coalition's members participated in the survey, along with ten health plans.

Although the purpose of the survey is to measure patient satisfaction, the Coalition has added questions aimed at monitoring the overall health status of the community and gathering information on specific diseases. According to Cherney, employees' satisfaction levels with their health plans are a major concern. "If you're spending hundreds and millions of dollars [on health benefits] and your employees are still mad at you, you've got a real problem," said Cherney.

Incentives

Monetary incentives have not been part of the Coalition's arsenal in terms of getting providers, hospitals, and health plans to focus on improving quality of health care—although this is about to change with a "pay-for-performance" system the Coalition plans to implement. Instead, the Coalition has relied on a variety of incentives tailored for each group. These indirect incentives include: peer pressure, competition, delivery changes that yield cost savings, a reliance on an employer's commitment to the community, and the use of data and information together with guidelines as a tool for sparking change.

Incentives for Physicians to Improve Their Practice

Most of those interviewed for this case study agreed that physicians have driven the majority of outcomes improvements. According to Coalition members, physicians have responded keenly to peer pressure and the need to excel in their field. At the beginning of the data-collection process, physicians were not eager to participate, but once they started receiving information on how they practiced comparing them against their peers locally and nationally, they wanted to continue receiving this information—and they wanted additional details.

"Physicians are driven to be good," said Cherney. "They've come to believe that they are the best, and if the data show for some reason that they aren't, then they want to know why."

Physicians use these comparisons to demonstrate to managed care companies why they should be on their panels and also to affect their medical malpractice premium rates. If they can provide data demonstrating how well they practice, they may be able to lower their premiums.

If a particular physician demonstrates persistent and serious quality problems, the situation is handled at the hospital level. For example, if a physician places in the bottom quadrant of the chart in relation to outcomes, the hospital medical staff will analyze the data and work with that physician to improve performance. If the physician's performance does not improve, he may be asked to leave the hospital staff.

The proposed pay-for-performance model would strengthen this incentive for physicians to improve their practice, said Cherney. For example, physicians willing to treat employees with chronic illness could receive higher reimbursements. "It makes sense to get our sickest employees to our best-performing physicians," she added.

Incentives for Employers

Employers offer a variety of reasons why it is beneficial for them to belong to the Coalition:

  • The Coalition provides a wide range of claims data that employers would not be able to obtain on their own.
  • Belonging to the Coalition gives employers the clout to continue seeking quality and cost improvements. The area's two largest hospital systems cannot ignore Orlando's largest employers.
  • By working to improve quality and the overall health of their employees, employers hope to ensure that their workers will be able to continue working and lose less time on the job. These issues are extremely important to employers struggling to retain and recruit employees in what is projected to be one of the country's tightest labor markets.
  • Through the empirical data provided by the Coalition, employers are able to compare outcomes and health plans, providing them with concrete information on what they are getting for their money when they purchase health benefits packages on behalf of their employees.
  • Coalition members are convinced that quality improvements, and working to change health care delivery practices, will naturally lead to lowered health care costs. In the words of one member: "If you don't have the quality, then it's going to cost you more."
  • The Coalition offers members an opportunity to share and understand what their colleagues are doing in terms of trying to improve quality and control costs. It is a networking opportunity.
  • The Coalition offers large employers committed to the Orlando area a way to help improve overall health in the community, and to continue their tradition of finding ways to improve overall community life.
  • Participation in the Coalition can demonstrate to employees that their employer is actively working in their best interest.

Coalition members believe that CFHCC is helping them achieve cost savings, but only because quality is the primary focus. It is a belief that does not appear to be widely held by businesses in general, but it is one that Coalition members swear by. Unless quality concerns are addressed first, then true cost savings will never be achieved. "If you can get quality down right and make it efficient, then price will follow," said Collins.

She also noted that simple procedural changes made by hospitals—changes that don't necessarily have to do with patient outcomes—can result in enormous savings. For example, providers found that every time a physician asked for an instrument to be included on a surgical tray, that instrument would most likely become a standard piece of equipment for future trays, regardless of whether it was necessary for the surgery being performed. After encouraging hospitals to address their surgical costs, physicians limited the number of instruments for a tray to those used routinely for 90 percent of operations. Tray costs were cut significantly, freeing those dollars for other uses. Standard surgical tray costs decreased, and the trays became easier to work from.

In addition, the Coalition has established several programs aimed at helping to improve the health of the overall community. They include programs targeted to new mothers as well as an asthma awareness program. In the "Amanda the Panda" program, the Coalition distributes a free series of 13 pamphlets to all new mothers, providing information on caring for the baby. The "Open Airways for Schools" program has been implemented at 42 schools in six counties and in 2000 alone identified more than 800 students with asthma and taught them and their parents, about the disease. The program is credited with helping to raise attendance in 1998 by 19 percent and helping students with asthma improve their grades by 8 percent. There are currently 40 schools on the waiting list to participate in the program.

Obstacles to Creating a Successful Coalition

Like other employer health coalitions, CFHCC has experienced its share of growing pains and dealt with difficult issues such as leadership, financing, and member recruitment.

For example, during the period 1990–1992, when Cherney stepped aside, the organization experienced a loss in membership. Furthermore, funding for data-collection activities was not always adequate, and there was a period when some members felt they were not getting much value for the dues they were paying and left the Coalition.

Cherney argues that small, struggling coalitions will never get off the ground without strong leadership. "The number one reason why coalitions fold up is that the leader leaves," said Cherney. "The national movement needs to have a training program. And we need to work with smaller coalitions and the shining stars." For example, she said, if a community such as San Jose wants to create a coalition, then an organization such as the highly successful Pacific Business Group on Health should be brought in to mentor.

Loss of leadership or the withdrawal of a key coalition member can lead to a coalition's demise. High CEO turnover is not unusual at large companies, and for a business coalition that depends on continued participation and support of its members, that can mean instability.

Coalitions also need to have size if they are to have clout in their markets. Cherney argues that regional purchasing coalitions like CFHCC can have a much greater impact on their markets than smaller coalitions that wield less influence.

Other obstacles to creating and maintaining a successful coalition include inadequate financing and member recruitment. The Orlando Coalition found that dues alone could not support all of its activities. So the organization now operates on a budget that consists of dues, grants, and other money-generating events. In fact, dues represent the smallest part of the Coalition's operating budget. Instead the Coalition survives through contributions and funds generated through conferences, grants, and partnerships with pharmaceutical companies.

Cherney pointed out that recruitment is an important activity for a coalition that's just starting out, but that it should not be the focus of a more mature organization. "We're not in the business of constantly reaching out. My focus is on keeping all the projects that we have going," Cherney said. "In the last four or five years, we've gained a status where people come to us. Besides, the ones that you try hard to recruit are the ones who may balk if they do not see a return on their investment immediately."

Looking Ahead

CFHCC has plans to make two significant changes to its operations within the next two years: a move to direct purchasing on behalf of its members, and the creation of a three-tier reimbursement system for physicians based on their overall outcomes.

Cherney expects that the move to direct purchasing will not take place before 2002. At that time, the Coalition would likely begin by covering an estimated 10,000 to 15,000 lives, offering perhaps four or five product choices. The Coalition will also establish a payment structure under which charter members will receive some type of cost break for their role in creating the new system.

In addition, in an effort to secure even greater quality improvements, the Coalition plans to establish a multi-tier performance rating system that would pay physicians according to patient outcomes. As part of the new pay-for-performance system, physicians would be profiled on their treatment of ten conditions Coalition members say are currently the most costly and debilitating for their employees: lower-respiratory infection; sinusitis; hypertension; lipid/cholesterol disorder; abdominal pain; chest pain; low-back pain; diabetes; depression; and ischemic heart disease/angina.

Do Employers Truly Value Quality? Or Are Cost Savings the Bottom Line?

What became evident through interviews with members of the Coalition is that they truly believe that the provision of high-quality health care is the only way to control health care costs. Some key questions remain, however. Do employers really care about the overall health of their employees and those living in the surrounding community? If improving quality did not translate to lower health care costs, would employers still be interested in value-based purchasing?

Coalition members differ in their answers. At Hubbard Construction, where some employees have devoted all of their working years to the company, health is a high-priority issue. In addition to participating in the Coalition, the company tracks the conditions that are most likely to affect members of their workforce and offers either information regarding these conditions, screening tests, or preventive equipment. Through data collection, Hubbard knows that its employees are most susceptible to conditions such as high blood pressure, back problems, hernias, and diabetes. Each employee must undergo a physical. If the employee's diastolic pressure exceeds 90, he or she is not allowed to start work until the condition has been taken care of. To help prevent back pain, the company issues information on back care, proper ways to lift, and how to wear a back brace correctly; it even provides equipment. The company sometimes also goes as far as tracking whether an employee with back problems receives good treatment. Hubbard put a drug treatment program into place with the Coalition's help.

"We really are interested in their [our employees'] health," said Collins. "We're not in the business of health care, but we're in the business of making sure our health care is okay." The company's interest continues after the employee retires, because the employee may opt to continue with the company's group health insurance. The company will also help employees and retirees sift through the complicated paperwork associated with their claims.

But Collins is also aware that costs are a very real part of the equation. While the company picks up half the bill for all group health insurance costs, many employees opt not to carry the insurance because it costs too much. Accordingly, the company views quality improvement as a way to lower costs and, in the process, make insurance available for more of its employees. Hence its participation in the Coalition.

Universal Orlando has a different perspective, due largely to the high turnover rate among its mostly young and relatively healthy workforce. As a result, Universal does not offer wellness programs or track the conditions that are most likely to cause absenteeism among employees. "The tenure can be very short. I don't really have an opportunity to make them healthy and reap back from that," said Steck. "We don't have that kind of luxury, so it's not an investment we make."

Conclusion

CFHCC represents 35 percent of the employees in the local commercial market, and it appears to be making a difference in how health care is delivered in two of the area's major hospital systems. Since its inception, the Coalition has remained focused on making changes at the health care delivery level, effecting savings along the way. But how much of an impact is the Coalition really having? Are those changes affecting just a small percentage of people in the Orlando health care market?

In conducting this case study, we found evidence that the Coalition is having an impact on the way health care is delivered in the Orlando health care market. As noted, the Coalition has been able to document health care delivery changes that have led to cost savings in some cases and outcome improvements in others.

Using several data collection and analysis systems, the Coalition has also garnered the attention of the provider community. The area's two major hospital systems participate in the Coalition's data-collection efforts, along with no fewer than ten insurance carriers. At the provider level, physicians are working to improve their overall performance, especially in relation to the specific measured DRGs, as a result of the implementation of a physician profiling system.

According to Rudloff, the changes that physicians make in their practice patterns extend to all their patients, not just those who are members of the Coalition or who are patients in one of the participating health care systems. For the community at large, this has had the "rising tide raises all boats" effect. "If we work intensively with physicians in our system, they are going to take what they learn and apply it wherever they practice, so it's going to influence the culture at a competing hospital as well," said Rudloff. "Clearly, this raises the level of quality for the entire community."

Coalition members also argue that small businesses within the local community benefit from their efforts as well, although this impact is difficult to document. The belief is that once the Coalition can wring savings and practice changes out of a system, small businesses, which do not have the same clout as a coalition, also benefit. Whether cost savings achieved through practice changes at local hospitals are passed on to small businesses through their insurance premiums has yet to be determined.

In addition to working to improve delivery practices, the Coalition has launched public education programs to benefit the entire community. These include an education program about newborn care for new mothers and an asthma program. In Collins' words: "A whole community can ride the coattails of a coalition's efforts."

As with most quality improvement programs, the value of a specific improvement can be difficult to measure in trying to gauge the Coalition's success. To Rudloff, the Coalition is about "changing the process of care, trying to create the demand for the information, and showing how those changes have cut costs and improved quality." There is no question that the Coalition has taken many of these steps. The question is how much of an impact it has had in the greater market.

Direct Contracting in the Twin Cities: A Viable Health Care Purchasing Strategy for the 21st Century?

Introduction

When the Buyers Health Care Action Group (BHCAG), a coalition of Minnesota's largest employers, decided several years ago to take the middleman out of health care, it made headlines and raised hackles. Under a unique health care purchasing program called Choice Plus, BHCAG contracted directly with participating health care delivery systems—or "care systems"—for the care of its members' employees, eliminating the role of health plans as brokers for health care services. But although the groundbreaking program, involving 28 health care delivery systems, has made significant progress and attracted widespread attention in its four years of operation, serious questions remain about its overall impact on health care delivery in the Minneapolis–St. Paul market and even about its long-term viability.

Despite the unanswered questions, BHCAG is set to make headlines again as it takes steps to expand beyond the boundaries of the Twin Cities and launches a new nonprofit entity that will focus on advancing improvements in clinical care, patient safety, quality measurement and reporting, and health care reform.

BHCAG launched Choice Plus in 1997 with the goal of stimulating market competition and helping employers and consumers obtain the best health care services for their money. Like other purchasing groups around the country, BHCAG is in pursuit of the Holy Grail: value-based purchasing that improves population health. Some observers say that BHCAG's direct contracting method may be the wave of the future, eliminating managed care and health plans as we know them today. Others say it is short-lived and won't survive in the long run. Still others say that Choice Plus is just another form of managed care that simply shifts rather than eliminates administrative costs.

However, the program can point to several substantial accomplishments in its short history. It has, in fact, fostered competition in the Twin Cities health care market, and several carriers have moved to offer products similar to BHCAG's. It has also engaged the participation of 28 competing care systems. BHCAG appears to be a significant agent for change in the Minneapolis–St. Paul market, spurring health care providers, employers, public purchasers, insurers, and consumers to think about and purchase health care services differently.

In addition, BHCAG is probably one of the best-known health care purchasing coalitions in the country, and it has attracted intense interest from business coalitions and policymakers throughout the United States. Coalitions in California, Iowa, Denver, South Dakota, and in the cities of Miami, St. Louis, and Portland, Oregon, are considering modeling their purchasing strategies on Choice Plus. Within Minnesota, the state Department of Employee Relations, with 150,000 employees, has joined BHCAG as an affiliate member. The state Medicaid program—by far the largest purchaser in the state, with responsibility for 500,000 lives—is considering a care system approach, viewing it as one that will benefit both recipients and taxpayers.

That said, BHCAG is not yet a powerhouse in the local health care market, and it's unclear whether it ever will be. For one thing, it doesn't have the numbers. The employers in BHCAG represent just 5 percent of the Twin Cities commercial health care market. Enrollment of their 140,000 or so employees (10 percent of employees in the commercial market) is spread across 28 care systems, meaning that BHCAG has relatively little purchasing clout with any given system. Steve Wetzell, former executive director of BHCAG, said candidly that enrollment in the care system model will need to improve dramatically—accounting for at least 20 percent of the market—to ensure a future for the coalition. The need for growth is a primary driver behind BHCAG's latest move to expand Choice Plus beyond the Twin Cities area and at the same time, open it to non-BHCAG-insured and self-insured employers.

Like many other purchasing coalitions around the country, BHCAG asserts that its interests lie in improving health care. But many of the group's efforts remain focused on creating a situation in which care systems compete on price and satisfaction measures, and not as much on quality. "BHCAG is still very much focused on costs," said Carolyn Pare, then director of benefits at Dayton Hudson Corporation (now BHCAG chair). "As impressed as we are with what BHCAG has done—and everybody in the country is impressed, because they are cutting-edge—they're not doing very much at the [quality] level." It is a perception that BHCAG is acutely aware of and is struggling to change.

The following case study reviews how and why BHCAG was created, and the philosophy that drives it; describes in detail how the group functions; offers insight into BHCAG's impact on the Twin Cities health care community; and discusses its future plans. The case study is based on interviews with BHCAG leaders and members, public and private employers, care system and health plan representatives, and state officials. The purpose is to better understand the implications of BHCAG's strategy for value-based purchasing.

How BHCAG Started

Considered one of the most sophisticated business coalitions in operation today, BHCAG got its start about ten years ago, when several key business leaders met informally to discuss health care prices, which were on the rise nationally, and how to get them under control. The organization began with fewer than nine employers and 45,000 people enrolled but has since mushroomed. BHCAG now represents 35 employers and 140,000 covered lives, all enrolled in Choice Plus.

While BHCAG employers make up just 5 percent of the overall Minneapolis–St. Paul market, the organization's member companies are all large, self-insured companies, such as Dayton Hudson Corporation, 3M Company, and General Mills—the kinds of clients that most health plans and insurers covet. In addition, BHCAG's contracting network of 28 care systems includes virtually all of the Twin Cities' practicing physicians—a big selling point with employers and employees.

BHCAG member employers began buying health benefits together in 1993 through a preferred provider organization (PPO) option, in an effort to use their combined market power to secure better prices. But in 1997, the group decided that its PPO program was not enough and made its daring move to direct contracting with 20 care provider systems. In effect, BHCAG wanted to change health care delivery, not only to secure better prices but also to raise awareness about quality.

According to Wetzell, the move to direct contracting was precipitated by several factors. Most important was lack of competition in the commercial health insurance market, where three major carriers—HealthPartners, Medica, and Blue Cross Blue Shield—controlled approximately 82 percent of the market share. "There's a question as to whether purchasers, and ultimately consumers, can protect their economic interests when there are just three carriers dominating the market," said Wetzell.

In response to consumer demands for provider choice, these plans all offered products with broad, overlapping provider networks so that they were, in effect, virtually identical. This lack of differentiation not only exacerbated the lack of competition among insurers, but it also made it extremely difficult to measure and compare quality, Wetzell noted.

Measuring quality is an integral part of BHCAG's mission. Furthermore, BHCAG believes that consumer empowerment is essential to driving quality improvement. This philosophy is a critical element of BHCAG's direct contracting system. Consumers select their care systems after receiving information from BHCAG on cost, provider choice, and overall customer satisfaction scores. Essentially they decide what is important to them in a care system. If consumers have problems with the price of their care or the way it is provided, they can complain directly to their physicians.

The Twin Cities Market

Minneapolis–St. Paul is home to the Mall of America, the third most popular tourist destination in the United States. Considered one of the largest commercial centers between the East and West Coasts, the Twin Cities serve as the headquarters for no fewer than 12 of the Fortune 500's largest U.S. corporations. In addition to medical product makers, food processing businesses, and major graphic art firms, more than 1,300 technology-intensive companies have located in Minneapolis–St. Paul, giving it one of the largest concentrations of high-technology businesses in the country.

Because of the area's low unemployment rate—which was 2 percent in 2000, compared to 4.1 percent nationally—major employers are concerned about the quality of care their workers and potential workers receive. According to several business leaders, they want to ensure that the employee pool remains productive and viable.

The state of Minnesota has long been viewed as a leader in health care, working to reduce the number of uninsured and implementing progressive health care programs. The Twin Cities area is considered a mature managed care market with numerous health care systems. In the late 1990s, three major insurance carriers had 82 percent of the commercial insurance market share. This market domination spurred BHCAG to implement its direct contracting program as an alternative and as a way to slow escalating market consolidation.

According to Wetzell, BHCAG has been successful because the large, self-insured employers care about the quality of care provided to their employees and are committed to the area. It also helps that many of them are headquartered in the Twin Cities area. "We have the actual decision makers here, whereas a lot of other communities have divisions, but the decision making is done somewhere else," Wetzell said. "Here, there is a critical mass of employers who have a stake in the community."

Wetzell and others also view members of the closely knit medical community as key players working in concert with employers to help improve health care outcomes. Even area insurers have a focus on health care quality. HealthPartners, for example, offers extensive quality- and satisfaction-related data on its Web site and helped form the Institute for Clinical Systems Integration (ICSI) along with the Mayo Clinic, the Park-Nicollet Medical Center, and several other smaller medical groups. The ICSI engages in continuous quality improvement, has developed and disseminated practice guidelines, and has assessed emerging technologies (Christianson, Feldman, Weiner, et al. 1999).

How BHCAG Operates

BHCAG's philosophy is clear: There must be more competition in the marketplace to effectively control price and improve quality. Simply working with health plans to streamline costs will not produce dramatic changes in how health care is delivered or major improvements in the quality of care that is provided. In order for the new system to make an impact, consumers need to be directly involved in their own care.

According to Patricia Drury, a senior consultant to BHCAG, the direct link between physicians and consumers is "working to motivate the troops within the care systems to make system changes to bring down costs and improve quality, and they're doing things like they have never done them before." Direct contracting prompted one care system to fully automate all of its systems with a preventive care reminder for every patient visit. For example, if a patient is admitted for treatment of a sprained ankle, the program may determine that it's also time for the patient's tetanus shot. Or a diabetic might get a prompt for a retinal test. BHCAG's direct contracting model has become extremely useful in helping physicians manage patients with chronic conditions, said Drury.

The consumer-oriented focus of the new purchasing system also establishes an important new relationship in the health care marketplace: a direct link between the delivery system and its patients. "Employers come and go, plans come and go, but that relationship between the integrated delivery system and patient is what is critical to population health and efficiency," said Wetzell. "So we have to measure that and have consumers staying where they think they're going to get the best care, regardless of who they work for or which plan is sponsoring that program."

The value of a direct relationship with consumers is not lost on participating health care systems. David Wessner, president and CEO of HealthSystem Minnesota, says it is up to consumers to take an active role in determining what they want from a health care system. "Our philosophy is that you inform your consumer as much as possible and let them then buy according to their value system," said Wessner. "So in terms of quality, in areas such as outcomes, preventive service measures, or satisfaction levels, if somebody wants to buy based on how fast you answer the phone, let them buy on how fast you answer the phone. If somebody else wants to buy based on your hemoglobin scores, let them buy on that."

In the small world of purchasing cooperatives, BHCAG's direct contracting approach to value-based purchasing is highly experimental. The principals who run BHCAG have made it clear that they view the Choice Plus program as a change agent, a program that ultimately will alter the way health care is delivered in the Twin Cities market and eventually in the rest of the country. And, as expected, much of the traditional market in the Twin Cities area appears to be threatened by the new approach, which challenges the roles and vested interests of virtually every stakeholder in the market. In the words of Wessner, BHCAG is creating "a marketplace that basically eliminates the health plan as a player."

BHCAG describes its care system model as one that is centered on primary care, with affiliated specialty, hospital, and allied professional relationships. According to BHCAG, the care system is also "organized to provide or contract for the full continuum of medically necessary services for an enrolled population."

The Choice Plus program uses a three-tier pricing structure, with care systems placed into one of three cost groups. BHCAG does not dictate or suggest specific pricing levels. Instead the care systems present their own bids in January for the following year's business. Based on those bids, the care systems are then grouped into three cost groups, ranging from the lowest-cost group to the highest.

BHCAG then issues materials in the fall of that year, noting which cost group the care system falls into, as well as overall satisfaction scores for each system (see Table 1). Consumers choose the care system they want to affiliate with, based on providers' locations, prices, and quality scores. In the program's first year, the average monthly premium differential between the high- and low-cost groups was $37 per family plan (Christianson et al. 1999, p. 103). According to BHCAG, the amount of subsidy each employer provides employees for health care costs varies greatly. Generally, however, most employers require employees to pick up a greater percentage of the cost if they choose a care system from a higher-cost group. In essence, by implementing premium differentials, employers reward employees for choosing care systems from the lower-cost groups. "That creates a consistent market across employers but maintains their discretion to decide how much of their cost they want to subsidize as an employer," said Wetzell.



Under this system, BHCAG does not negotiate price. The care systems are accountable to the consumers, not to employers negotiating for a specific price break. BHCAG does build in a risk-adjustment system to ensure that care systems that attract sicker patients or deal with more complicated clinical conditions are compensated appropriately.

The system is also designed so that family members can choose to belong to different care systems. For example, a college student attending school away from home can choose a provider near school and not be locked into his parents' care system. Some care systems try to build provider networks that are as geographically comprehensive as possible to avoid such coverage problems. But BHCAG's new system "allows care systems as small as two clinics to compete against giants like Allina and HealthPartners that have 70 or 80 clinics," said Drury. "It allows smaller groups to stay in the market and compete on a level playing field with the bigger networks." It also allows care systems to specialize in caring for specific populations, such as children.

But BHCAG's system is not only about price and making consumers aware of how their care systems compete financially. BHCAG is determined to make clinical quality and satisfaction scores a major part of the equation. For example, in an effort to differentiate care systems and allow for some comparisons on clinical quality, BHCAG prohibits primary care providers from participating in more than one care system. Furthermore, BHCAG requires each care system to meet minimum quality improvement requirements—if they don't, they face expulsion from the program. The group also sponsors a yearly Quality Awards program in which care systems compete for substantial cash awards. The award winners must demonstrate that they have substantially improved clinical quality in a given area.

Quality Measurement/Survey Tools

While BHCAG strives to improve health care quality in the Twin Cities area, it is limited in how directly it can pursue this goal. Two main obstacles exist: strict state privacy laws that prohibit BHCAG from looking at and comparing medical records, even among their own enrollees; and the dispersion of BHCAG's participants over nearly 30 care systems. In most instances, the small numbers prevent the group from coming away with any valid quality comparisons.

BHCAG's employers, however, are not deterred. In fact, they have established a committee whose sole purpose is to determine how to better measure and improve health care quality. Employers participating in BHCAG believe that quality is the ultimate key to fostering and nurturing worker productivity far into the future. In the meantime, however, BHCAG has built substantial quality and satisfaction measures into its operating system. These measures include the following:

Quality Improvement Requirements. To participate in Choice Plus, care systems must demonstrate that they meet certain quality improvement requirements. Each care system must: establish a quality improvement oversight group that involves medical staff, set concrete goals for measurement, and develop a plan to institute any gains in quality improvement. Failure to establish a quality improvement program will be publicized by BHCAG to consumers, although the group will continue to offer the care system for one year. If improvements are not made within that period, BHCAG will either terminate its contract with the system or strongly encourage consumers not to select it.

Quality Awards Program. Although state laws generally prohibit BHCAG from collecting medical record data without individual patient approval, individual care systems can do this within the context of their own quality improvement programs when they compete for BHCAG's annual Quality Awards. The top award carries with it a $100,000 cash prize and substantial positive publicity.

There are two components to the award. The care system is judged on the completeness of its preventive efforts in 19 specific preventive services—such as blood pressure, cholesterol levels, cancer screening, tobacco counseling, and adult and childhood immunization—as well as its ability to document that it improved a specific health outcome.

"I think the Quality Awards process in particular has motivated a number of those systems to do some things they might not have otherwise," said Kathleen Burek, former assistant commissioner of the Minnesota Department of Employee Relations. "They've gotten the attention of the care systems."

FACCT Pilot Program. As part of a limited pilot study conducted in 2000 in conjunction with the Minnesota Department of Employee Relations and the Foundation for Accountability (FACCT), based in Portland, Oregon, BHCAG surveyed three care systems on how their processes of care compared to quality standards for three chronic conditions: diabetes, coronary disease, and asthma. The group found that the three care systems varied greatly in how they managed these conditions. BHCAG is now trying to secure funding to explore how the care systems are using the results and to expand the pilot into a full-scale survey.

Consumer Satisfaction Surveys. BHCAG uses Medicare's Consumer Assessment of Health Plans Survey (CAHPS) to compare consumer satisfaction with the care systems in each of the three cost groups. The survey covers such topics as how people rate their clinic or personal care physician; how well doctors communicate; getting referrals and care; getting care without long waits; and the courtesy, respect, and helpfulness of office staff.

For many BHCAG participants, the satisfaction scores are just as important as information on clinical quality indicators. "Those scores push our change agenda and our management agenda here very directly," said Wessner. "So we try to design work that's based around trying to move those scores. They're very powerful, and they drive resource expenditures inside our system very directly."

According to many of those interviewed, consumers are primarily interested in obtaining satisfaction data. But under the new direct-purchasing system, consumers are showing a heightened interest in quality data, especially in relation to how much health coverage costs them under a particular care system. "Patients do pay attention to quality data, and they really pay attention when price is on the table," said Drury, noting that some consumers have voted with their feet when the care system they were enrolled in changed cost groups or experienced poor rating scores.

According to Drury, BHCAG's members are committed to finding ways to improve clinical quality or to at least measure it. She says that BHCAG would like to conduct more surveys and is considering establishing direct economic incentives involving quality.

But that does not mean that BHCAG wants to assume complete responsibility for providing consumers with clinical quality data for measurement purposes. "I would like to see us get to a point where some clinical indicators are available, but I'm not sure that the BHCAG organization is the place where that is best generated," said Terry Koves, director of compensation and benefits for Land O' Lakes. "I think it's got to come through a different organization. We're just not equipped as a group of employers. I think some organization that is able to get at the data well—massaging it and presenting it in a way that is understandable by participants, by people, by the population—would be important."

According to BHCAG, this was one of the original purposes in creating the Data Institute, formed four years ago as a private interest by BHCAG, the Minnesota Department of Employee Relations, the Minnesota Chamber of Commerce, and the Employers Association.

BHCAG sees the Data Institute as having the potential to become a neutral, single source that all Minnesotans can rely on to provide reliable clinical quality indicators, do clinical chart reviews, and fund meaningful clinical outcomes measures. The Data Institute currently contracts with BHCAG, the state Department of Employee Relations, and the Minnesota Department of Human Services to conduct an annual BHCAG patient survey.

Incentives for Care Systems

Nearly 30 care systems in the Twin Cities area have chosen to participate in BHCAG's program. According to employers and care system representatives, there are several reasons why care systems are interested in direct contracting:

  • The program offers a direct relationship with the consumer/patient.
  • Care systems are better able to use price to shape demand.
  • The Quality Awards, in and of themselves, are strong motivators to improve clinical quality and customer service.
  • The initiative offers physicians an incentive to improve the way they practice.

According to Koves, the care systems appreciate BHCAG's emphasis on quality and the fact that the group is willing to devote dollars and time (directly via the Quality Awards) to ensuring that quality is a priority. "We're not simply saying just do quality and you will get rewarded by patients choosing you," said Koves. "We are out there saying that if you can demonstrate some really interesting quality measures—both consumer satisfaction and some real numbers—we're prepared to pull together some money from these 30 employers and provide you with some interesting incentives and some publicity and some opportunity to display how well you have done your work."

The top award carries a $100,000 prize, but according to care system representatives, the more valuable components of the awards are the attendant publicity and the motivation they provide clinicians to improve clinical outcomes and quality.

Park-Nicollet, part of the HealthSystem Minnesota care system, won the top award in 1999 for creating a program to reduce strokes and hemorrhages through better management of patients taking anticoagulants. Another system, the Children's Physician Hospital Organization, took home the second place award of $50,000 for creating a telephone triage system that targets children whose parents are not inclined to bring them in for a checkup or in response to a specific condition. The new system enables Children's to monitor outcomes and help prevent adverse events, including death.

The push for quality is not limited to efforts designed to win Quality Awards. The bigger picture is quality improvement at a systemic level, which is why, according to Wessner, BHCAG permits primary care physicians to participate in only one care system. When care systems include the same providers, there is no way to differentiate them. The ability to differentiate and measure performance motivates physicians and staff to improve. "That is stimulating to our clinicians, to have the opportunity to differentiate themselves, as opposed to getting averaged in with everyone else," said Wessner.

The direct contracting relationship offered through BHCAG also gives care systems a great deal more control over pricing. As a result, care systems can differentiate themselves to consumers on price. When consumers receive health care through a health plan, they generally are unaware of differences in prices among health care providers—they only see price differences at the health plan level, Wessner noted.

But under direct contracting, the consumer knows whether the care system is in a low-, middle-, or high-cost group. Some consumers will choose based on cost alone, while others are willing to pay more for quality, value, and reputation, said Wessner. "The great thing about the Buyers Health Care Action Group is it creates more than one price going to the marketplace," said Wessner.

Incentives for Employers

Employers cite a variety of incentives for participating in BHCAG, including the following:

  • A network of virtually all the practicing physicians in the Twin Cities area
  • A way to involve consumers directly in choosing their own health care options
  • Strength in numbers—that is, clout with health care providers as a result of belonging to a coalition of 30 large, influential employers
  • Lower administrative costs (BHCAG's administrative costs run about $12 per member per month, compared with $14 to $22 for health plans)
  • The opportunity to abandon the health plan as the middleman

There is also the potential to ensure and even improve worker productivity by purchasing better, more effective health care services. "We have to stand for more than price," said Pare of Dayton Hudson. "Health care needs to be talked about in terms of more than just how much it costs. It needs to be talked about in terms of what it does for you and why do you need it, and why you need it can't be just about needing acute care. It has to be about how each of our employees is functioning as a whole person."

According to Pare, cost savings do not necessarily translate into better health outcomes, so the focus needs to be on quality. "We need to have everybody fully functional in the workforce," she said. She added that employers who are serious about maximizing health care value know that they need to pay attention to quality, productivity, and functionality—not just the bottom line.

For some employers, the benefits of participating in BHCAG are a little more indirect. As Koves put it, BHCAG offers "an opportunity to sit at a table as an equal with some very influential and bright people."

Obstacles to Success

As BHCAG continues its efforts to make the Twin Cities a more competitive health care market, it faces several challenges. Some of these, such as membership recruitment, are fairly typical of the problems faced by other business coalitions. But others are more specific to the environment in which BHCAG operates.

Many health plans in the state view BHCAG as a direct competitor. In particular, HealthPartners, which worked extensively with BHCAG as an administrator, has publicly decried BHCAG as "cannibalizing their business," according to an observer. Some health plans dismiss BHCAG's operation as a nuisance with no serious competitive implications for their own business. Despite its complaints, HealthPartners' total self-insured business is twice the size of BHCAG's alone. Yet several health plans in the area, including HealthPartners and Allina, offer products they claim are similar to BHCAG's, and they have created care systems for bidding purposes within BHCAG's Choice Plus program.

If health plans begin to see BHCAG as a real threat, they could use their market power to recruit a crucial employer from the group and, in the process, destroy BHCAG, said Wessner. The group is extremely cognizant that its large membership base is spread thinly among 28 different care systems. Expanding its membership base is the only way to increase BHCAG's influence with care systems and ensure a future for direct contracting, said Wessner. In addition, BHCAG needs a larger membership base in order to conduct valid quality comparison studies across care systems.

According to BHCAG leaders, the most significant obstacle to pursuing quality is posed by the state's laws on health data and patient privacy, which they describe as the most restrictive in the United States. Under these laws, patient charts cannot be accessed for any reason other than patient care without the signed permission of each patient. As a result, BHCAG cannot commission chart audits that could provide the level of clinical data needed to measure, compare, and improve clinical quality. Meanwhile, health plans have access to these data by virtue of the fact they are used to process payment for patient care. Health plans can provide a whole host of quality comparisons to consumers that BHCAG cannot.

Looking Ahead

According to Wetzell, BHCAG never wanted to be viewed as a competitor by area health plans. Instead, BHCAG was hopeful that insurance carriers would adopt the BHCAG model. "That hasn't happened, so that leaves the employers on their own, through BHCAG, to build and grow this model to make it sustainable," said Wetzell.

In order to ensure that the BHCAG model is viable and continues to grow, BHCAG will turn over the Choice Plus administrative reins to a new organization, Patient Choice Healthcare, Inc. (PCHI), later this year. PCHI has proposed to expand Choice Plus, using BHCAG's network and intellectual property, to include non-BHCAG-insured and self-insured employers. This will make Choice Plus available to small employers for the first time. It will also provide capital to more aggressively market the program. In addition, PCHI plans to expand the health plan to markets outside of Minnesota, working with other business coalitions.

In a related development, BHCAG has launched a new nonprofit entity that will focus on advancing improvements in clinical care, patient safety, quality measurement and reporting, and health care reform. This new entity will be jointly governed by employer representatives of BHCAG, provider representatives from the Healthcare Provider Systems Council, and consumers. The Healthcare Provider Systems Council was formed by many of the care systems with which BHCAG has a direct contracting relationship to represent the interests of care systems and to advance direct contracting and a more direct patient/provider relationship.

The decision to seek an outside administrative contractor reflected the coalition members' desire to return their focus to value-based purchasing and health reform, said Wetzell. "The employers never got into this to run a health plan," he said. "They got into this for purchasing and reform reasons." The coalition took over the administrative operation because the group could not find any HMOs or insurers that were willing to do it, he added. "Patient Choice stepping forward with their proposal allows us to outsource the operation of the product and allows employers to focus on purchasing strategy and market reform."

Do Employers Truly Value Quality? Or Are Cost Savings the Bottom Line?

While several BHCAG members admit that lowering costs and stimulating competition in the health care marketplace are important to BHCAG, they make it clear that implementing quality measures is also a high priority. They say this despite the fact that there is little evidence to demonstrate that BHCAG is actually having much of an impact on quality.

BHCAG members believe that they could accomplish more on the quality front if not for the difficulties involved in collecting the data required to implement quality improvement initiatives, and if enrollment levels were higher. Because BHCAG's enrollment is so dispersed, it is virtually impossible to measure and compare clinical outcomes at the care system level in a statistically meaningful way. Through the creation of the new nonprofit entity, BHCAG plans to aggressively address the need to better measure its impact on quality.

Still, the question remains: Are employers truly interested in improving the overall health of the population in the Twin Cities area? Do employers care whether their employees' health outcomes actually improve, or is employee satisfaction with health care benefits more important to employers? If BHCAG does not find a way to satisfactorily measure outcomes, will simply changing to direct contracting lead to improvements in health care delivery?

As noted by Pare, several employers view health care quality as the key to ensuring worker productivity in a tight labor market. They extend that view beyond their own employees to their employees' family members and to the Twin Cities population in general. But that is not necessarily the majority viewpoint. During a recent BHCAG board meeting, according to Wessner, more than an hour was devoted to making the business case for quality—for a group that supposedly is already convinced of the value of quality.

Furthermore, while some employers say they believe that better quality is essential to ensuring worker productivity, they are not certain of how to focus on this area. "The productivity of our employees is important, no question about that. If they are not well, they're not going to be here to work," said Koves. But he went on to say that, as a fairly small employer, Land O' Lakes does not have a medical director or staff to collect or assess clinical data for employees, nor does it track disease prevalence in its workforce. "Right now I'm very iffy in terms of understanding exactly what I might do with hard clinical data," he said.

Because BHCAG is unable to obtain clinical data that can be used to change and improve processes of care, it seems to be focusing instead on changing the nature of the financing system through which health care is delivered. By changing that system and bringing consumers into a direct relationship with their providers, consumers can demand changes—clinical, financial, and process-oriented—directly from their provider. Thus BHCAG's approach has to do with refocusing accountability. According to Pare, employers hope that this system will provide them with a way to truly interest and involve their workers in health care decisions and, in the process, increase their interest in quality.

Conclusion

BHCAG has enlisted more than 20 care systems to contract with the program, and other carriers have moved to offer products similar to BHCAG's. Nationally, the initiative has attracted widespread attention from policymakers, other business coalitions, and the news media. And it is poised to push its direct contracting system to employers beyond state lines. Clearly BHCAG's program is in the spotlight.

By moving to direct contracting, BHCAG has attempted to change the rules governing health care accountability and put patients into more direct contact with their providers. Patients now bear some responsibility for their health care decisions—at least in terms of selecting their care systems—and they can hold care systems accountable for their prices and the services they provide. Eventually this new locus of accountability could help improve quality, in BHCAG's view. Some patients may continue to be satisfied with service improvements, such as shorter waiting times and helpful appointment staff, but some consumers may demand evidence of superior quality of care as well. Otherwise they may take their business to another care system.

There is no question that BHCAG is having an impact in the marketplace and that its employers are committed to raising awareness regarding health care quality. The question is whether direct contracting will catch on or whether it will serve as an interesting experiment that eventually dies if it is unable to demonstrate solid improvements in clinical efficiency and quality, and truly involve consumers in health care decision-making.

"The mission of BHCAG has always been to create a market that competes on value and self-discipline based on the right kind of incentives, and then to put the coalition out of business," said Wetzell. "That is the end game: to use [Choice Plus] as a change agent."

Reference

Christianson, J., R. Feldman, J. Weiner, and P. Drury. 1999. Early Experience with a New Model of Employer Group Purchasing in Minnesota. Health Affairs 18(6):100–14.

Bringing Good Things to Life: GE's approach to Improving Health Care Quality

Introduction

Like most large companies that spend a lot on health care services, General Electric (GE) has been trying to leverage its formidable purchasing power to get its suppliers to provide the best value for the health benefits it buys its employees. Since the early 1990s, the technology and manufacturing conglomerate has been pursuing value-based purchasing through a variety of initiatives designed to make suppliers accountable to their customers.

One of the world's most admired corporations, GE is one of a handful of employers in the United States—including GTE Corporation, General Motors, and Pacific Bell—that are using their purchasing abilities to improve health care quality and improve accountability. The company's goal is simple, said Corporate Health Care Director Robert Galvin, a physician and devotee of value-based buying, "What we want is value, defined as the highest-quality care delivered at the most competitive price."

Galvin, who from the company's Fairfield, Connecticut, headquarters oversees more than $1.5 billion in annual health benefits worldwide, said GE's desire to better serve its customers is not that unusual. "In sectors outside of health care, companies are maniacally focused on customers. They want to know who they are and how they segment, how they think, and what it is they want from services or products." GE is attempting to do the same in health care.

This case study examines GE's value-based strategy overall, why the company has been successful, and what the future holds. This examination also showcases the efforts of one of GE's 12 businesses—GE Aircraft Engine