HealthCare Direct aims to help reduce costs for employers who self-fund health benefits
By Erik Gunn, for SBT
Just a few months into its formal rollout, a new plan for employers who self-fund their employees’ health benefits has begun gaining customers with a hard-nosed proposition: Cut costs by passing up the area’s highest-priced provider of health care.
That’s the underlying strategy behind HealthCare Direct, based in Oconomowoc. HealthCare direct is a preferred provider organization — PPO for short — with a twist. It doesn’t just get discounted rates from its preferred providers; it excludes one in particular that the firm asserts is overpriced: Aurora Health Care.
"We think we’ll save more money than any other PPO plan in the area," said Jack Meler, the firm’s president and chief executive officer. "And the reason for that is we redirect patient utilization away from the highest priced providers to more reasonably priced providers."
PPO plans have generally sought to hold down prices by extracting discounts from providers. By redirecting patients away from a particular provider, however, Meler says HealthCare Direct will gain additional savings for its customer employers.
As of late July, HealthCare Direct had signed up two small employers and was awaiting word from others among the 15 in its first round of proposals. The company is not an insurer and handles only self-funded accounts.
HealthCare Direct’s narrow network concept is turning heads, says an independent benefits broker who is one of a select few authorized to sell HealthCare Direct’s plan.
"Employers are starting to realize that we can’t have the broad-based networks and still have the kind of savings that we’ve been getting," said Bob Heaps, a senior vice president and head of the Milwaukee office of Aon Consulting. "Either A, you want access, or B, you want to save money. Employers are clamoring for relief. This concept is only going to expand."
By focusing on price – and punishing or rewarding health care providers on the basis of their cost-effectiveness – HealthCare Direct is trying to get back the advantage that PPOs originally offered, said Meler. When they were first conceived, preferred provider organizations were supposed to save money by negotiating discounts with selected providers, using the leverage of employer groups. They still do that, but Meler said the concept lost its edge as health plans and employers placed broader choices ahead of lower costs.
"What happened was the same thing that happened to the government in health care — everybody tried to maximize access," said Meler. "That’s one of the reasons we’re so much more expensive than anywhere else in the Midwest." A widely circulated survey in 2002 found health care costs in Greater Milwaukee exceeded the national average by as much as 55%.
HealthCare Direct makes its case on the basis of a proprietary index it developed with help form MetaStar, a Madison health data company. The company’s Relative Cost Index used publicly available data on hospital discharges and examined treatment costs associated with seven target diagnostic related groups (DRGs) — categories originally developed by Medicare for classifying hospitalization cases for purposes of payment. The selected categories represented more than 19% of all hospital inpatient stays, HealthCare Direct says.
The resulting index found Aurora’s costs were 19% higher than the community average. Three other hospital networks – Covenant, Horizon, and ProHealth – had costs that were anywhere from 3% below to more than 17% below the community average. HealthCare direct then negotiated discounts with those three networks.
Aurora has publicly taken issue with Meler’s assertions. "I still can’t find anybody in Aurora that would be relevant to this issue that has had any contact with him," said Paul Nannis, vice president of government, community, and public relations for Aurora.
HealthCare Direct stands by its findings. And the firm is only one indicator of growing interest on the part of benefit plans and employers in drilling down on the prices providers charge. A recent study by consulting actuaries Milliman USA also sought to bring to light real price differentials in the local health care marketplace. The interpretation of the study varies, however; Nannis suggested in passing that it showed few disparities in pricing, but Meler asserted that it "verfied our findings of the gross disparity of pricing among the hospital systems."
Added Meler: "I would hope that employer willing to spend $2,000 for the [MillimanUSA] study would appreciate that we were there first with free data."
And in another development, Ford Titus, president of Pro Health Care — operator of Waukesha Memorial and Oconomowoc Memorial hospitals, and one of HealthCare Direct’s three favored provider networks — in June urged requiring all hospitals to report cost and quality data using uniform methods.
Nannis acknowledged that Aurora is trying to combat an image as a higher-priced provider. Earlier this year the company pledged to hold down cost increases. Meler said it was too soon to gauge the impact of that promise. But HealthCare Direct has contended that even a very aggressive discount from Aurora couldn’t compete with the prices of the three systems with which it contracted. Including Aurora, therefore, would drive up health benefit costs, the firm maintains.
People with coverage through HealthCare Direct won’t be shut out of Aurora entirely. In return for choosing Aurora facilities, however, they’ll pay higher out-of-pocket costs.
HealthCare Direct offers a total of four different plans, Meler said. Three are so-called "select" plans. Each of those puts one of the three participating hospital and health systems as the plan’s first tier provider, with the other two in the second tier and all other providers in the area, including Aurora, in the third tier – the "out of network" providers. The cost differential to employees between a tier one provider and a tier two provider will be at least 75%, Meler said, while the cost differential between tier two and tier three will be at least 20%.
"If the employer chooses Horizon, and somebody wants to go to Covenant or ProHealth, they can, it just costs a little bit more money," Meler said. "If they want to go somewhere else, it will cost them a lot more money."
The fourth plan, slightly more expensive than the others, puts all three contracted providers in the first tier and all others out of network, costing employees 25% more to use.
Meler said that to further make its case, HealthCare Direct took health cost data from three small self-funded employers and, using its providers’ prices, projected savings from 9% to 14% compared with the area’s two biggest PPOs.
The company’s marketing strategy mirrors its strategy in dealing with providers. Just as it narrowed the selection of hospital networks it would offer, HealthCare Direct made its product available only to a limited number of health-plan brokers: a half-dozen in all. Besides Aon they include Snyder Insurance in Oconomowoc, Diversified Insurance in Waukesha, Beneco of Wisconsin in Milwaukee, Ansay and Associates in Port Washington, and Health Care Systems Consultants in Wauwatosa. The limited number of brokers builds commitment to the product by those who sell it, said Meler.
HealthCare Direct isn’t the first health benefit plan to exclude Aurora from its first tier of providers. United HealthCare dropped Aurora from its provider list in 1996, when United operated under the name PrimeCare. Humana dropped the firm from its HMO providers about three years ago, said Larry Rambo, CEO for Humana in Wisconsin and Michigan.
Rambo was PrimeCare’s CEO at the time the plan dropped Aurora. "We simply had a disagreement over what was a fair price to be charged for services and made a decision to go in our own separate directions," Rambo recalled. He added diplomatically: "I think both organizations look at it today and think they made good decisions."
Rambo wasn’t involved in Humana’s decision to drop Aurora (he didn’t join the insurer until several months later), but he said that decision, too, revolved around concerns that the company’s services were overpriced. "I should point out, though, that we also made the decision to continue Aurora in our PPO network," Rambo said. "Part of the strategy was to be able to offer employers choices."
While he has worked for two organizations that made decisions to exclude Aurora over price, Rambo said he doesn’t believe that should be the only factor in trying to hold down health care costs. "Analyzing the total cost of care versus unit cost becomes a very complicated process," he said. Humana’s overall strategy instead has been to develop insurance plans "that aim at helping guide consumers through the health care system" and steer them to make cost-effective choices by putting some of their own funds at risk — charging them more for richer plans, less for more streamlined ones that demand they pay more out-of-pocket.
HealthCare Direct, however, says it isn’t about bashing Aurora — it’s about focusing on price and following through with market discipline.
"This thing wasn’t designed to be anti-Aurora – it was designed to be pro-employer," said Arvid R. "Dick" Tillmar, chairman and CEO of T.E. Brennan Co., a risk management and employee benefits consultant that advised HealthCare Direct on marketing its networks. Employers who are willing to reward their employees for going to demonstrably cheaper providers "have really got an advantage with this plan."
Indeed, said HealthCare Direct’s Meler, if Aurora "gave us a sufficient discount to get into the range of the other providers, then we would be happy discuss with them." It may be harder for Aurora to join the primary network now, though, he cautioned, because "we have made some commitments to existing network members resulting from Aurora’s initial refusal to play with others."
Meler says HealthCare Direct is "trying to combine the best of managed care — which is really networks and discounts — with the best of consumer-driven and consumer-directed health care, which is employee incentives and information."
"One of the things we found in our research before we completed the network is that employers and providers speak very different languages," Meler said. "An employer thinks that providers just raise prices, and a provider thinks that an employer just complains. But the reality is that a cost-effective provider and a cost-conscious employer have a lot to talk about. The employer wants to save money and the provider wants to get increased volume."
Aug. 8, 2003 Small Business Times, Milwaukee
