More Health Care for the Money

Nearly 175,000 employees at 13 Southern California companies have joined a health-benefit plan that uses only hospitals that must first pass a sophisticated cost-and-quality analysis designed to identify the region's most efficient institutions.

New York-based Metropolitan Life Insurance Co., which launched the so-called preferred-provider plan after a year's experience with it in Miami, predicted that the plan would save its Southern California members $11.5 million this year in employee health costs.

Metropolitan's Met-Elect plan--which offers employees financial incentives for using selected physicians and hospitals--has been added this year to the benefit programs of such companies as Rockwell International Corp., which has 75,000 Southern California employees, Marshall Industries in El Monte and Pioneer Electronics (U.S.A.) in Long Beach, Bank of California, Zimmerman Holdings Inc. and Collins Foods International Inc..

Metropolitan said that what distinguishes its plan from others of the growing number of preferred-provider plans is the detailed analysis that precedes selection of physicians and hospitals to its panel of approved providers.

A Met-Elect subsidiary identifies efficient, cost-effective hospitals by examining the types and numbers of cases handled by each hospital and its ability to manage those cases, comparing performance on the basis of diagnosis-related groups of treatments. Metropolitan's medical department then performs what it calls a "qualitative analysis" to assess the credentials and service characteristics of each hospital.

Then, the company negotiates discount rates for its members with those hospitals that best meet Metropolitan's cost-benefit criteria.

In return, Met-Elect is structured to encourage members' employees to use the selected providers. Employees using the plan, for example, pay a smaller share of their health costs than required by traditional insurance plans, which typically pay 80% of the bill after payment of an annual deductible of $150 and up. Under the preferred-provider plan, the employee's share shrinks to 10% or less of the participating providers' generally discounted rates. Certain cost-effective alternative treatments--such as walk-in surgical care, pre-hospitalization review and obtaining second medical opinions--are entirely paid by the plan.

"There has to be either a carrot or a stick," Philip Briggs, Metropolitan's executive vice president, said in an interview during the plan's development. "We prefer to focus on the carrot."

The roster of approved providers includes 1,800 physicians and about 50 hospitals in the Los Angeles area, said Dan Robison, personnel director at Marshall Industries, a distributor of semiconductors. "The list is real impressive," agreed Lorraine Jenne, benefits supervisor for Pioneer.

Robison said his company hopes to expand the program to cover its 1,500 employees nationwide. The company decided to participate, he said, after facing hefty annual increases in its traditional health insurance.

Met-Elect saved $2 million in 1984 health costs for its first client, the Dade County School Board in southern Florida, according to John D. Moynihan, who heads Metropolitan's group life and health operations. Participating hospitals nearly doubled their share of the market to 41% from 22% in 1984, Moynihan said. In addition, the average cost per hospital confinement dropped to $4,792 from $7,278, and outpatient expenses increased to $8.6 million from $7.1 million in 1983 (indicating, he said, that more employees used alternatives to hospitalization.)

"Everyone gains," Moynihan said. "The employers and employees save on costs and elected providers benefit from market share rather than longer stays from fewer patients."

The Miami experience underlies Metropolitan's estimate that its Southern California clients will save $11.5 million in their first year's medical bills. Other major cities are expected to be added to the plan this year, and Met-Elect eventually will be available in major markets nation wide, Moynihan said.

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