Best Practices -- Strength In Numbers

Dec. 21, 2004
Employer-led coalitions attack rising health-care costs with the powers of negotiation, education.

Reducing inventory. Boosting productivity. Cutting injury-related lost work time. None of these is easy, but managers at world-class manufacturing plants say they all produce long-term benefits that are worth the efforts. How does reducing health-care benefits costs compare? For many companies, these costs are rising faster than any other expense. Yet, there's little even a world-class manager can do besides reduce benefits -- and the short-term pluses of this often are not worth the long-term hits of lower worker retention and satisfaction. Some self-insured manufacturers, however, are finding a solution in employer-led coalitions that negotiate directly with regional health-care providers. One of the goals of the Western Kentucky Four Rivers Health Care Purchasing Alliance, for instance, is to secure rates 30% below normal "retail rates" for 30 members (a total of 12,000 covered lives). In one extreme example, the alliance has negotiated a daily rate at the region's largest hospital that is less than 50% of the normal rate. "The power to negotiate as an individual is a lot less than the power to negotiate as a number of companies," says Ken Herndon, chairman of the Four Rivers alliance and human resources director for the Mayfield, Ky., plant of Continental Tire North America Inc., based in Charlotte, N.C. According to the National Business Coalition on Health (NBCH), which represents 90 employer-led coalitions across the United States, the model dates back to the 1940s with the Greater Detroit Area Health Council. However, most NBCH member coalitions formed from 1990-95, during the Clinton Administration's efforts to reform health care. Generally, coalition members are self-insured; and, according to NBCH observations, most successful coalitions have a core group of committed members that are willing to pay for a full-time manager. Member companies or groups still design their own benefits plans, but the services for those plans are purchased via the coalition. Coalitions can set up their own rules as well -- for instance, some negotiate drug benefits, and some don't. Others require that members charge different rates for "in-network" and "out-of-network" care. For care outside the region, coalitions can set up "wrap" networks for people who are traveling or need care not provided locally. Besides rate negotiation, coalitions also strive to reduce costs through education programs (on diabetes care, for instance) and health-care advocacy. For the most part, coalition members are local entities -- single-site companies or one large plant or site of a multi-site company, for instance. While some may view this as a weakness of the model, Larry Bone, executive director of the Four Rivers alliance, views it as a strength. Health-care providers are more apt to negotiate better rates with a local group of familiar people because payments for services are more reliable and easier to obtain, he says. "In a lot of cases, they [health-care providers] are going to church and other activities with plant managers and HR directors," Bone says. "The savings really come from the fact that providers are more comfortable with us. It's not the complete answer [to rising health-care costs], but it helps." For more information on employer-led coalitions, see the National Business Coalition on Health Web site, Send submissions for Best Practices to Editorial Research Director David Drickhamer at [email protected].

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