COLUMN ONE : Making Care Their Business : Companies, even rivals, are uniting in new coalitions to lower medical expenses. They provide their own clinics and salaried doctors, and make hard-nosed bargains with hospitals.
Jimmy Lee Jr., whose Pepsi plant in Birmingham, Ala., is the biggest family-owned bottling operation in the United States, says he routinely “fights like hell in the marketplace” with Elbert Mullis, boss of the rival Coca-Cola bottling company across town.
But one business matter recently brought Birmingham’s soft-drink barons into the same room--the runaway cost of health care.
Increasingly frustrated by escalating employee medical expenses, Pepsi, Coke and six other big companies in Birmingham have decided on a radical solution: They are banding together to open their own medical clinic, hire salaried doctors, buy prescription drugs in bulk and engage in hard-nosed bargaining with hospitals over fees.
Similar revolutions are occurring across the nation as a growing number of big employers--desperate to save money as health costs soar--begin to experiment with strategies that bypass insurers and other intermediaries and plunge directly into the medical care business.
In Washington state, a corporate coalition has bluntly warned hospitals and doctors that medical equipment and beds are too often underused, driving up costs for all consumers. “If you build it, we won’t come,” is the unofficial slogan of the Seattle-area coalition. The group’s opposition already has scuttled plans to open a new kidney dialysis center and launch another open-heart surgery program in Seattle.
In Florida, employers installed their own custom-made software in hospital computers to compare treatments against national patterns of care, and the average stay at a $500-a-day major medical center dropped by a full day.
Medical costs are soaring at three times the rate of inflation, fueled by costly new equipment, rising hospital payrolls, increased tests by doctors, big malpractice settlements and the public’s insatiable demand for health care.
As soaring expenses cut deeply into profits, corporate executives have become veritable tigers in search of saving a health care dollar whenever possible.
But even though the aggressive business coalitions may produce big savings for individual companies, they paradoxically can make things worse for other players in the nation’s chaotic health care system.
Any money saved by Pepsi and Coke on hospital bills in Birmingham, for example, is likely to lead to higher charges for other classes of patients who don’t have the same economic muscle: the self-employed and workers at small businesses.
“We’re trying to take care of our own employees,” said Lee, the chairman of the family-owned Buffalo Rock bottling operation, which produces Pepsi and Dr Pepper for six states. “The government has to worry about these other problems.”
Corporate bargain-hunting is “good for you and bad for the system,” said C. Duane Danner, president of the California Assn. of Hospitals and Health Systems. Cutting a special deal “does not solve the (overall) problem and does damage to other patient elements,” added Stephen W. Gamble, president of the Hospital Council of Southern California.
These contradictions demonstrate the intractable nature of the health care crisis facing the Clinton Administration.
The President has promised to provide health coverage for 36 million uninsured Americans, control surging costs and assure the vast majority of Americans with health insurance that they can keep their current doctors and switch jobs without losing protection.
Elusive Savings
Clinton’s health advisers contend that they can save the billions of dollars needed to cover the uninsured by slowing the precipitous growth of Medicare, which serves 33 million elderly and disabled Americans, and Medicaid, a federal-state program that pays the bills for 26 million poor people. But the Administration is not saying how it will achieve these elusive savings.
Hospital managers insist that they barely cover their costs on Medicare patients already, and often lose money on Medicaid. Government payments cover only 80% of the average cost of treating a Medicaid patient, according to the American Hospital Assn., which said the industry was hit with more than $9 billion in costs for uncompensated care in 1990.
In years past, when health costs were rising more slowly, hospitals could make up some of the deficit by charging more for patients covered by corporate health plans, and corporate leaders seldom complained.
But now, as medical expenses claim an ever-larger share of corporate budgets, business executives are becoming more aggressive. One sign of their new assertiveness is the creation of health care coalitions in more than 100 cities.
In Birmingham, a number of big firms began by meeting to commiserate about health costs. They eventually agreed to create a nonprofit firm that will soon open a clinic staffed by two salaried doctors who will see no more than 20 to 30 patients a day, leaving enough time for personal discussion and evaluation.
Birmingham workers can use other health care facilities, but a visit to the clinic for an exam will cost 25% less, according to R. William Whitmer, president of Wellness South, which developed the new plan for the Coalition for Employee Health Care in Birmingham.
“It is a queasy feeling, even though I know what I am doing is aboveboard and legal,” said Mullis, executive vice president of Coca-Cola Bottling Co., talking about his collaboration with Lee, the Pepsi magnate.
“We have a specific policy in Coca-Cola United that says it is absolutely forbidden to ever talk to our competition about prices, products and promotions, and we are very careful of that,” Mullis said. “I have to be honest, I still feel a little uncomfortable sitting in a room with a competitor, even though we just talk about health care. But they have the same problem we do in controlling costs.”
Comparing Work
Throughout central Florida, hospitals--at the polite but unmistakable insistence of corporate coalitions--have installed software showing doctors how their work compares with their peers around the state and in the nation.
As an example of the benefits, corporations note that the average length of stay at Florida Hospital in Orlando dropped to 6.5 days last year, down a full day. This means significant savings when a day in the hospital costs $500.
Doctors now bring patients in for surgery the day of the operation rather than the night before, and make more frequent use of home health care agencies. Using oxygen less frequently for pneumonia patients saves $200,000 a year, and substituting cheaper, but equally effective, drugs carved $2 million from last year’s hospital pharmacy bill.
“We buy $250 million worth of health care a year. We have to treat it like any other purchase,” said Jon Reiker, director of benefits for the General Mills restaurant division in Orlando, which has 95,000 people working at more than 1,000 Red Lobster and Olive Garden restaurants.
“Nowhere else would you tell an employee: ‘Pick a vendor of your choice, buy whatever they tell you to buy and send us the bill.’ But that’s the way the health care system has worked,” noted Reiker, president of Central Florida Health Care Coalition.
Few Precedents
Corporate cooperation in going after health care charges is a relatively new phenomenon, although some firms have a long history of direct involvement in medical care.
Southern California Edison, for example, operates clinics and has its own contract network of doctors and hospitals. The firm’s health care department even qualified for the same accreditation granted to hospitals.
But until recently, there were few precedents for the kind of cooperative effort under way in Birmingham and other locales.
Coalitions have sprung up in more than 100 cities. About 50 have banded together as the National Business Coalition Forum on Health to deliver the message to Clinton that business is trying to help solve the problem--and remains wary about any national plan that would limit corporate autonomy.
Most big American corporations are self-insured, deciding on any combination of benefits and services for their workers. A national benefit package--an idea being promoted by the Administration--could limit the freedom of businesses to craft their own benefit packages. Sean Sullivan, president of the National Business Coalition, says the group wants to assure that local companies keep their freedom just as they find innovative ways to control spending.
In San Francisco, for example, the Bay Area Health Council informs individual hospitals how their numbers compare to state and national norms for Cesarean-section births, deaths of infants within 30 days of birth and survival rates for organ transplants. The council’s membership includes such heavyweights as Bank of America, Pacific Gas & Electric, the University of California and the state employees retirement system.
The subtle pressure produces voluntary improvements at many hospitals, said Patricia Powers, the coalition’s executive director. Ultimately, hospitals that don’t improve will be dropped from the eligibility lists for treating the employees of coalition members.
“We haven’t had to get to that point yet,” Powers said.
Expansions Blocked
In Seattle, however, the Health Care Purchasers Assn. of Puget Sound is moving to take the offensive, blocking medical facility expansions.
“I just routinely say: ‘If you build it, we won’t come,’ ” said Andrea B. Castell, the executive director. “It’s like having a factory not operating at capacity. In open-heart surgery, or other procedures, the more you do something, the better skills you get. It’s like being a very good seamstress or a carpenter. If you get too many players, each one does very few and their skills are not very good.”
Castell said she is going beyond simply blocking proposed expansions to something new: a group purchasing organization that will negotiate deals with individual hospitals. The group hasn’t decided yet whether it will aim for a discounted fee schedule on hospital procedures, or a flat yearly fee for each worker covered, a system known as “capitation.”
Unions, meanwhile, are feeling the same pressures as management, with health costs gobbling up money that otherwise could be used for salaries, pensions and other benefits.
In trades where workers switch jobs frequently, such as construction, health care coverage is often provided by an industrywide fund that receives contributions from employers.
In Connecticut, a coalition of such funds representing 125,000 workers and their dependents negotiated discounts with 26 of the state’s hospitals. It is now working on plans to use its buying power to get discounts from doctors, laboratories, physical therapists, dentists and drug companies, according to Vera Miller, administrative manager for the Connecticut Bricklayers and Allied Craftsmen Health Fund.
Union workers feel a particular squeeze as they try to preserve health care protection in an uncertain economic climate. The recession cuts the rolls because fewer workers have the 1,000 hours a year needed to retain eligibility.
And the competition from non-union companies is tough.
“The humane employers” who offer health insurance “are finding they are at a disadvantage in the current marketplace, losing work to employers who provide no benefits,” said Miller of the Bricklayers fund, who also serves as secretary of the statewide coalition, called the Connecticut Coalition of Taft-Hartley Health Funds.
Union bricklayers get wages of $20 an hour, with employers contributing another $6.45 for benefits, including $3.15 an hour for health coverage.
Any victories in cost-cutting by unions, as well as the successful discounts demanded by corporate coalitions, fail to deal with society’s bigger dilemma--the rising expense of treating Medicare patients and the poor, and deciding how to cover the uninsured.
“That’s why you need a national health solution, so you don’t pass the buck from one group to another,” said Geraldine Dallek, executive director of the Medicare Advocacy Project, which provides free legal assistance to Medicare beneficiaries.
She is familiar with the confusion spawned by the current system, not only as a recognized expert but also as an employer who has struggled to obtain affordable care for her 15-person staff.
“I look for the best deal for my employees,” she said. “If everybody is out for No. 1, that leaves the health care system still in a big mess.”
