Local Purchaser Coalitions

The California Health Care Coalition’s local purchaser coalition program is bringing public and private sector employers, unions and health and welfare trust funds together in Los Angeles, Modesto, Sacramento, San Diego and the San Francisco Bay Area for the following purpose:

1. Review the quality and cost-effectiveness of their local hospitals;

2. Meet with selected hospitals and medical groups and negotiate master agreements to improve quality and efficiency;

3. Implement specific cost stabilization and quality improvements, drawing on CHCC’s hospital performance data and our statewide collaborations with Blue Shield of California and Kaiser Permanente.

CHCC focuses on building local purchaser strength for three main reasons. First, the utilization, quality and price of health care services widely vary from provider to provider and community to community. This variation is substantially explained by the treatment and business decisions of local health care providers, who set prices, diagnose illness and deliver care of widely varying appropriateness, effectiveness and efficiency. Despite this variation in the quality and cost of health care, purchasers and patients have little access to performance data.

Second, even very large purchasers lack influence in today’s health care marketplace when acting alone. There are over 2500 purchasing groups in California, almost all of which buy health care services in a marketplace that offers little price and quality information. While purchasers remain fragmented, California’s health industry is notable for the speed at which health plans, hospitals and medical groups have consolidated into larger and larger financially connected organizations. This lack of competition means that health plans and providers increasingly are able to raise premiums or prices without improving the quality or the cost-effectiveness of the services they provide.

Third, purchasers can dramatically lower their costs and improve health care quality when they join together at the local level. Two powerful examples illustrate how and why:

• The HERE National Health and Welfare Trust Fund is a national, multi-employer trust fund purchasing health benefits for over 160,000 plan members in Las Vegas, Nevada. Faced with annual double digit increases in health costs, the Fund used its medical claims to profile the cost-efficiency of 1800 physicians in its Las Vegas network. It also implemented a “gold star” program to help its members select higher quality network physicians. As a result, the Fund reduced its annual medical cost trends by over 10 percentage points, saving the Fund a total of $67 million over the first 24 months of program implementation.

• The UFCW National Health and Welfare Trust Fund purchases health benefits for approximately 4000 plan members in Modesto, California. The Fund was struggling to continue providing comprehensive health benefits for its plan members in a delivery system context in which two local hospitals had increased their service charges by 35 percent each year for 5 years, while delivering poor or uneven quality in many important areas of service. The Fund approached and negotiated a direct contract with one of the two hospitals (the other refused to meet with Fund representatives), with provisions to reduce costs and improve quality. As a result, the Fund reduced its hospital costs by 50 percent, achieved specific quality improvements and saved the Fund $1300 per member per year.

These examples demonstrate the power of managing health costs by focusing on what providers do and fail to do, rather than by restricting benefits or asking patients and their families to pay more for care. The manipulation of health benefits will provide only marginal, short-term savings, but changes in co-pays and deductibles may have a boomerang effect by discouraging employees from accessing needed care on a timely basis. Delayed care is more expensive care and these types of changes are thus likely to increase overall health benefit costs. Moreover, health plan design changes do little to address the supply-side problems in health care – high prices and provider-driven overuse, under-use and misuse of health care – that dramatically inflate costs.