Crowdfunding concept. Almost anyorganization of any size can reduce at least part of its healthcare spend through coalition membership. The more members onebrings to the party, the greater the potential savings. (Photo:Shutterstock)

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We all know there is strength in numbers, but when it comes topurchasing health services, how do numbers translate into buying power? More specifically, health care buying power? Can any organizationbecome part of a purchasing consortium, or are effective health coalitions limited to major employersthat can bring thousands of plan members as a bargaining chip tothe benefits table?

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The answer: Almost any organization of any size can reduce atleast part of its health care spend through coalition membership.The more members one brings to the party, the greater the potentialsavings. But no organization, regardless of size, can benefit fromcoalition membership without having the will to change its benefits strategy. And regardless of how manyplan members a coalition commands, it still must be able toeffectively negotiate with parties that have historically balked atprice transparency.

Banding together

As pressure has increased on health care organizations andprescription drug vendors to be more transparent about their actualcost structures, more employers are collaborating to find ways topierce the lack of transparency that has been characteristic ofthese providers. Cracking the cost code on medical proceduresrepresents the Holy Grail for coalitions, since medical represents75 to 80 percent of plan spending. While early coalition buildershave found this to be frustrating, their persistence will payoff–if they are serious about reducing spending and stick together.But reducing medical costs will be hard work and the savings may beless than anticipated.

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“Coalitions in general are a great idea. The one thing thatcould move the needle [on health care spending] is market share.That is what hospitals and others really look at,” says DavidHenka, CEO, ActiveRADAR, a company that specializes in providingclients with reference-based pharmaceutical pricinginformation.

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But, he says, coalitions have only “so much weight and authorityin any given market. They only represent a fraction of the servicesany provider has the capacity for.”

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Negotiating effectively with providers must include the threatto take business elsewhere, says Health Rosetta founder DaveChase.

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“Put simply, hospitals won't be transparent until health carepurchasers are willing to walk away and pursue alternatives,” hesays. “Other than true emergencies, which is a small part of healthcare spending, there are always other options available, whetherit's from independent medical practices and surgery centers, thehospital an hour or two away or domestic and international medicaltourism.”

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The least difficult types of purchasing coalitions to createare:

  • Coalitions among organizations in the same geographic area,particularly those whose entire employee population resides in thatarea. Government entities are ideal candidates.
  • Coalitions to purchase prescription drugs. Large employers areideal candidates.
  • Organizations that promise to deliver group discounts (OMNIA inTennessee is one). Any company can become a member of these grouppurchasing organizations.

Tacking pharma spend

Prescription drug purchasing coalitions can be built acrossgeographic borders and represent a relatively easier plan savingsopportunity, compared to the job of negotiating medical costreductions.

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“The advantage of focusing on prescription drugs is thesebenefits are like peanut butter–the contracts are the sameeverywhere in the US,” Henka says. “If you have a large populationwhere you can control entirety of costs you don't have to getmedical group by medical group to negotiate favored nation status.The meat of the argument is on the medical side. But it's heavylifting: one system and one clinic at a time. The prescription drugmay only be 20 percent of your spend but it's one-stopshopping.”

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Group purchasing organizations, designed to reduce drug costs tomembers, have been in existence for years. These services don'ttarget specific types of organizations; the common denominatoramong clients is the desire to reduce health care spending.

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OMNIA includes in its menu of services for human resourceprofessionals a prescription drug purchasing model. OMNIA partnerswith two prescription drug services–Southern Scripts and EmployersHealth–to offer “a best-in-class program with a variety ofcustomizable pharmacy benefits management solutions.” OMNIApromises “transparent and aggressive pricing models” as well ascomplete support services to help HR reduce drug spending.

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Large employers are also exploring collaborative alliances toreduce prescription drug spending. Last fall, the HealthTransformation Alliance, composed of 40 major employers of the IBMscale, signed on to use an online prescription drug platform fromRx Savings. The platform promises to save employers and their planmembers money on a range of drugs by supplying members withinformation on both actual medication cost and its efficacy.

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Other large employer organizations like the National BusinessGroup on Health are reporting increased coalition formation amongits members that are targeting drug spending. The group's latestmember survey found that nearly one in five members is part of apharmacy coalition or cooperative.

New groups emerging

The reduction of actual medical insurance claimcosts has been the focus of emerging employer coalitions.These coalitions bring together members that have much more incommon that simply seeking to reduce health care spending. They maybe enterprise scale commercial employers, regionally based smalleremployers, or government entities that are co-located. They areusing similar tools: the identification of health care providercenters of excellence (COEs); reference-based pricing; anddecentralized treatment facilities. They are taking on hospitalsystems over pricing, and making gains.

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Insurance advisor Holmes Murphy has considerable experiencefacilitating nontraditional collaborations designed to addressemployer health care spending. The company began to explore ways toreduce costs for its Dallas-Fort Worth area clients in 2015.

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“DFW area health care costs are higher than the average in theU.S.,” says Den Bishop, president at Holmes Murphy. “One of thereasons for the gap is the difference between what Medicare paysfor hospital services and what employers pay. It is very wide inthis marketplace.”

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The firm focused on its government-entity clients, primarilybecause all their plan members were in the DFW area.”They buy alltheir services in one place, which gives them market shareadvantage. The other piece is that it is taxpayer money. There istrue transparency as to what they will pay for goods andservices.”

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Holmes Murphy used the increasingly available hospital data toeducate representatives of various government entities about theprice differentials in the market.

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“We showed them by hospital what is being billed and whatmedicare is being paid,” Bishop says. “The real pricing. What wedid not know was how much they were paying.”

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Would each representative be willing to share that information?They would. That was when the coalition was trulybirthed. “We were able to show in this market the taxpayermoney was purchasing after discount about 250 percent of Medicare.There were variances between insurance companies. But by time yourolled it up by network didn't make a great difference.”

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Because it was the largest player in the coalition, the city ofDallas was chosen to negotiate the first contract in 2016. Othermembers would then be able to access the same terms. While therewere bumps along the way, including an inability to achieve pricingtied to Medicare costs, the members have already realizedconsiderable savings.

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“The dialog between cities and hospitals has really opened upsince we sat down across the table with the hospitals and explainedthese are taxpayer dollars,” says Holmes Murphy's Morgan Young,vice president, client services for public entities. “It used to beeverything was filtered through the [insurance] carrier. By havingthose conversations with the hospitals, we showed them we had doneour homework. The hospitals know exactly what they are doing andwill continue to do it until there's a strong push from themarketplace to change. We want to provide that push.”

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Brian Dickerson, director of human resources for the City ofFort Worth, says considerable negotiations were required to achievethe new contract. But the savings–especially for a taxpayersupported entity–were worth it.

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However, he cautions that private employers may have a moredifficult time. “It will be much easier to accomplish thisin a municipality than a corporation. It's very difficult for acompany to set up something that is regionally based.”

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Health Rosetta's Chase disagrees that private employers cannotenjoy the benefits of such coalitions.

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“For-profit businesses are free of issues that politicalentities sometimes face, since the health care industry are largelobbyists and employers. However, [private employers] must applythe same ongoing rigor to the business coalition they would anystrategic area of their business as opposed to a sidelight. Theymust realize that every day, a large swath of the health careindustry is scheming to redistribute as much money from employersas possible as they've been an easy mark for a long time. It'scritical that they look at all dimensions of transparency to seekout what some are calling a 'Fair Trade' for health care.”

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Dan Cook

Dan Cook is a journalist and communications consultant based in Portland, OR. During his journalism career he has been a reporter and editor for a variety of media companies, including American Lawyer Media, BusinessWeek, Newhouse Newspapers, Knight-Ridder, Time Inc., and Reuters. He specializes in health care and insurance related coverage for BenefitsPRO.