By Marcian Horlock | KHN

State employees in Colorado are being asked to be better consumers when shopping for health care services. And if they choose lower-cost, higher-quality providers, they can get a check in the mail for a portion of the savings.

It’s part of an initiative known as the Colorado Purchasing Alliance, through which state employers come together to negotiate lower prices for health care services. The state government is one of 12 employers who have agreed to join the alliance and will be the first to use newly negotiated rates and consumer incentives.

The goal is to disrupt what is seen as a dysfunctional market for health care by encouraging employers and employees to make better choices and forcing the country’s health systems – which have some of the highest prices and profits in the country – to lower their rates.

Since July 1, state employees have access to the Healthcare Blue Book, an online tool, owned by the health data company of the same name, that ranks health providers by cost and quality. Providers in the top 25% for quality are marked in green, the bottom 25% in red and anyone in between are in yellow. The same color scale is used for costs.

“If you go to a green-green service provider, we’ll send you a check,” said Josh Bean, director of employee benefit contracts for the Colorado government.

Screenings can range from as little as $50 for something like a mammogram to thousands of dollars for surgery. In most cases, the money helps offset the co-payments, coinsurance, or deductible. But for preventive services like colonoscopy, which have no co-pay, it’s extra cash in the employee’s pocket.

The rewards program is only available to employees who choose the state’s self-funded health plan, which is administered through Cigna, not the Kaiser Permanente option, which has a closed network of providers. Of the nearly 20,000 people, both employees and family members, in the Cigna plan, more than 1,200 people used the tool in the first six weeks, and performed 4,500 searches.

“We can cut out the entire network and really make choices, but part of what I want to do is encourage people to make better decisions,” Ben said. “There are ways to reduce healthcare spending without hurting employees.”

Although it’s too soon to know how much the state will save through the program, Healthcare Bluebook estimates that employers save an average of $1,500 each time a registered member uses the online tool to choose a provider.

“And you end up with fewer complications and fewer sick days,” Bean said.

Larimer County, in northern Colorado, has been using the Blue Book of Medicare since 2018 in its incentive program to counteract the high prices it has been paying for employee care under its self-funded plan. With little competition, local health systems were charging county employees nearly twice the prices in Denver, just two hours south.

“We have a particularly dominant health care system here that knows it’s the system of choice, based solely on market reputation, and they are willing and able to charge accordingly,” said Jennifer Wittner, director of benefits for the county.

Whitner called up an employee who needed a hip replacement and found an independent orthopedic center that costs $20,000 less than a hospital-owned facility and has high-quality ratings.

“Being able to share information regarding how you shop for healthcare and that not everyone charges the same price for everything, and — oh, there’s really a difference in quality depending on where you go — was really interesting,” she said.

Over the first four years, the county paid out an average of $15,000 in bonuses annually. The county calculated that for every $1 it spends providing a health care guide to its employees, it saves $3.50.

Andrea Bilderback, a county health education and promotion specialist, used the tool when deciding where to have a mammogram and colonoscopy after she recently turned 40. That had no out-of-pocket costs. She and her husband used the money for a date night, a welcome respite for the parents of a half-year-old.

“It was like free money,” Bilderback said.

Similar methods have been used with varying degrees of success across the country. California Self-Insured Schools, a buying alliance representing 450 school districts in the Golden State, implemented a similar system years ago. Officials compared the prices they paid for five common procedures — arthroscopy, cataract surgeries, colonoscopy, upper GI, and endoscopy — at hospitals versus stand-alone surgery centers. They found that surgery centers were generally much cheaper and that care was often rated better. The group limited the amount of money it would pay hospitals, leaving staff in a bind to get any credit. If they go to the surgery center, there will be no cover.

For example, the cap on arthroscopic procedures was set at $4,500, so if the hospital charged $6,000, the patient could be billed for the remaining $1,500. But if that patient goes to a surgery center, the plan will cover the entire cost, regardless of the amount.

In the first year, starting October 1, 2018, the new approach shifted 54% of procedures from high-cost hospitals to low-cost surgery centers, saving school districts $3.1 million in healthcare costs.

“If you can pay $25,000 for a car or $75,000 and the only difference is agency overhead, why pay $75,000?” said John Stenerson, executive vice president of Self-Insurance Schools in California. “It’s a bit like what we do with medical pricing all the time.”

The Colorado Alliance conducted a similar analysis of the 10 most common outpatient procedures paid for by employer members. Even before negotiating any rates, employers can halve the costs of these procedures by sending employees to surgery centers rather than hospitals. Surgery centers tend to charge less than hospitals for the same procedures, and hospitals often charge facility fees that increase costs to consumers and employers. A recent study found that the costs of a group of orthopedic surgeries were, on average, 26% lower at ambulatory surgery centers than at hospitals.

The cashback incentive program is part of a broader effort by the Colorado Alliance to lower health care costs for state employees and 12 other employers, mostly in school districts and local governments. But it is state employees who give the coalition a large block of covered lives and greater bargaining power with doctors, hospitals and other health providers.

Robert Smith, president of the Colorado Health Business Group, which leads the alliance, believes the alliance purchasing model can revolutionize the health care market and use the power of employers to lower costs. He explained that most companies pay premiums for a health plan to cover their employees but allow those health plans to negotiate rates with hospitals, doctors and other providers. It would be too complicated and time consuming for most companies to take on this role themselves.

On the other hand, healthy buying alliances allow employers to unite and negotiate rates for a larger group of employees, giving them greater market power to negotiate lower rates.

“Healthcare outcomes are not price-related,” Smith said. “You can pay double the price for some of the worst health care in one facility, and then you can get some of the best health care for half the price at another facility 10 miles away.”

But if employers change the way they buy health care, Smith said, that could create a competitive market.

So far, most negotiated rates have been restricted to providers in the densely populated Front Range area of ​​Colorado which includes Denver, Fort Collins and Colorado Springs. The alliance is trying to enroll providers in other areas, particularly in the western part of the state, but it could take three years or more to fully transition to the new model.

A report by the nonprofit Catalyst for Payment Reform found that such alliances often had early success but could not survive, in part because of the backlash from large health care systems. These systems often reduce the purchase prices of alliances to put them out of business.

So far, Smith has negotiated with stand-alone ambulatory surgery centers, imaging facilities, and physician-owned clinics. But he has had no luck getting the larger health systems to play an important role.

“If it’s disruptive enough that it affects their bottom line and they notice, then, yes, I think they’ll come to the table,” said Penn, the state employee benefits manager.

This story is produced by KHN (Kaiser Health News), a national newsroom that produces in-depth journalism on health issues and a key driver at KFF (Caesar Family Foundation). Posted with permission.

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