Tackling High Health Care Prices: A Look at Four Purchaser-Led Efforts

Some of the biggest U.S. employers have tried and failed to rein in the prices they pay for their employees’ health insurance benefits. Part of the reason is that large and small firms alike often lack the critical mass of employees needed to drive changes in a local market. Some also lack the expertise needed to negotiate better contracts with their providers or are loathe to ask their workers to change how they get their care. As a result, employees’ own costs keep rising, as employers shift more of the cost burden onto their workers. Between 2011 and 2021, insurance premiums for families covered by employer-sponsored plans increased 47 percent — outpacing inflation (23%) and wage growth (31%).

In some regions, employers have formed buying groups in an attempt to negotiate lower prices. Often, the most activist are self-insured employers who pay their employees’ medical claims directly rather than purchasing insurance through health plans; more than 60 percent of all employers pay for health benefits this way.

In this article, we profile four purchaser-led initiatives to tackle the high costs of health care, centered around direct negotiations with health care providers; employee incentives to seek care from higher-quality, lower-cost providers; and efforts to call attention to high prices. While success has varied and challenges are daunting, these strategies point to possible avenues for other employers to explore. Scaling them may well require employers to partner with other payers, including the federal government, to gain leverage in markets where health care competition is lacking.

Employers’ Forum of Indiana: Shining a Light on High Prices

The Employers’ Forum of Indiana is a coalition of 154 organizations, including large employers such as Cummins, Eli Lilly, Fiat Chrysler, Indiana University, and Purdue University. For 20 years, the organization’s self-insured members have sought to understand local health care markets and align payment with value for their employees — efforts that began to gain traction when they went public with their findings.

One factor fueling high prices in Indiana has been the diminishing number of independent providers, which often charge less than hospitals and health systems because they have less leverage to negotiate prices and don’t add facility fees to outpatient charges. Roughly 70 percent of physicians in Indiana are now employed by hospitals and health systems — higher than the national rate of 47 percent. “When employers are trying to steer their population to independent physicians and independent ambulatory care, surgical centers, labs, imaging centers that are typically the better value — there are not that many left,” says Gloria Sachdev, Pharm.D., president and CEO of the Employers’ Forum.

Rather than negotiate on behalf of employers, the coalition has partnered with the Robert Wood Johnson Foundation to increase transparency around pricing. Over the last five years, it has commissioned RAND Corp. to conduct several groundbreaking studies that have revealed the prices specific Indiana hospitals negotiated relative to Medicare for inpatient and outpatient services. The first study, published in 2017, found that employers were paying 358 percent of Medicare rates, on average, for outpatient services and up to three-and-one-half times the Medicare rates for inpatient services, based on analysis of claims data. Hospitals associated with large health systems charged more than smaller health systems and independent hospitals.

At first, the response from hospital leaders was fairly muted, Sachdev says. But when the 2019 report found that the Indiana’s hospital pricing was the most expensive in the nation, and the 2020 report showed that the state was the sixth-most-expensive in the nation for hospital care, the state legislature and news media took notice. “Employers started asking their insurance companies, ‘What the heck? How do you negotiate 500 percent of Medicare? Is that the best you can do?’”

The release of pricing for specific hospitals has begun to alter negotiations between health plans and hospitals, Sachdev says. In 2020, the Indianapolis-based insurer Anthem used RAND’s data to demand concessions from Parkview Health. The third RAND report noted that Parkview charged more than four times Medicare rates and was the most expensive health system in the state, a claim its leaders disputed. Employers have also begun to contract directly with health systems, creating centers of excellence and bundled-payment programs for high-cost procedures in orthopedics, cardiology, oncology, and organ transplants. Sachdev says employers are receiving better pricing this way. She says it remains to be seen whether savings from the Anthem–Parkview Health negotiations have been passed on to employers.

The fourth iteration of the RAND study, to be published this spring, goes a step further by comparing independent and health system–owned practices and analyzing the pricing of more services, including imaging, laboratory services, office visits, and surgical procedures. The Employers’ Forum plans to pair the cost data with quality metrics, such as hospital readmissions and mortality rates, based on data reported by the Centers for Medicare and Medicaid Services and Quantros, a data analytics firm. “We have to do a better job of lining up quality and price together so people can shop for care,” Sachdev says. Toward that end, the organization is launching its “Hospital Value Dashboard” in April 2022 to make this information public.

The Employers’ Forum has also pursued state legislative fixes, like getting rid of the gag clauses insurers and providers sometimes use to conceal pricing from employers. Sachdev says its efforts to promote transparency informed the development of federal rules requiring hospitals to make pricing information available to consumers online. New federal rules also prevent health plans from using gag clauses to restrict employer access to price and quality information.

The Alliance: Pooling Claims Data and Steering to High-Value Providers

The Alliance, a Wisconsin nonprofit cooperative based in Madison, was founded more than 30 years ago by a group of seven self-insured employers frustrated by the lack of transparency around pricing of medical services. At the time, many were dependent on provider-owned health maintenance organizations, which not only limited their employees’ provider choices but didn’t offer access to data on claims, and the utilization or price information those contain. “The employers who founded us wanted access to their data to allow them to make better-educated decisions on how to utilize health care,” says Melina Kambitsi, Ph.D., senior vice president of business development and strategic marketing.

Wisconsin ranks high on measures of health care quality but not always on measures of affordability. The economy has a strong manufacturing base and large employers with relatively stable workforces, making health care spending patterns somewhat predictable and making it more likely that savings from cost control efforts will accrue to employers who invest in them.

To get a better handle on spending, the organization’s founding members set up a system in which medical claims would be sent directly to them and priced according to contracts negotiated with a provider network. Once priced, the claims are then forwarded to third-party administrators that self-insured employers use to issue payments.

The Alliance now serves more than 300 employers, ranging from large companies with 5,000-plus workers to small ones with as few as 25. The network they created includes more than 135 hospitals and 7,500 clinics across Wisconsin and counties in Illinois, Iowa, Michigan, and Minnesota where employers have operations.

Because the Alliance processes more than 1 million claims each year for its members, the organization has a comprehensive view of provider pricing across its region. It uses the data to demonstrate the financial and quality benefits of steering employees to high-value providers, including some that have agreed to accept bundled payments for certain high-cost procedures. Depending on an employer’s location, its employees’ acuity of illness, and its willingness to steer workers to particular providers, these strategies can reduce total health care spending by up to 15 percent, Kambitsi says. One employer found it could save more than $3 million a year by steering its 2,000 employees to different providers of musculoskeletal care and imaging. Another company saved $4 million over five years by directing its 600 covered employees and their dependents toward high-value providers and investing in direct primary care. The Alliance has also been able to extract greater savings for common, plannable services, such as orthopedic procedures.

The Alliance has had greater success in markets that have more independent hospitals or primary care physicians. In communities where primary care competitors are hard to find, employers have begun to look at alternatives, such as sharing ownership of direct primary care clinics with other firms.

The Alliance works to negotiate rates that are a percentage of Medicare reimbursement rather than discounts off of providers’ billed charges, which are subject to change. “The strategy is more predictable and ensures less cost variation for employers,” says Deb Kunferman, vice president of network development and provider relations. Roughly 90 percent of claims the organization prices for clients are for a percentage of Medicare; several hospital systems in Wisconsin, for example, are contracted to receive 150 percent of Medicare rates, a figure typically much lower than what commercial health plans pay. (For example, RAND’s third study found Wisconsin’s hospitals were paid nearly three times Medicare rates, on average, by employers and private insurers between 2016 and 2018.)  

The Alliance has begun to market its approach — mining claims data to identify opportunities for cost savings and managing the claims administration to ensure correct pricing — to other employer coalitions, including the Northcentral Employers Health Alliance in Wisconsin. The nonprofit’s approach of explicitly looking for savings across a market differs from what third-party administrators that manage claims for other self-insured employers typically do.

Connecticut’s Network of Distinction: Betting on Bundled Payments and Employee Incentives

The state of Connecticut spends almost $1.3 billion annually on health benefits for more than 215,000 employees and their dependents, as well as retirees not yet eligible for Medicare. For many years, it has been beholden to two large health systems — Yale New Haven Health and Hartford HealthCare — that have dominated the market and raised prices after a series of acquisitions that allowed them to capture a large share of the state’s hospital admissions.

Competing hospitals and other providers that don’t charge as much but performed well, if not better, on quality measures “have felt like second-class citizens,” says Francois de Brantes, senior vice president for Signify Health in Norwalk, Connecticut. His company has helped the state devise a system for steering employees to higher-value providers. The Network of Distinction program offers employees as much as $1,000 in cash if they use providers that have agreed to accept a bundled payment for care related to more than 40 procedures and conditions, such as coronary artery disease, diabetes, or Crohn’s disease. The episode-based rates cover all necessary care, including treatment for any complications that might arise, creating an incentive for provider organizations to maintain high quality while using less expensive sites of care.

To join the network, providers must meet designated quality benchmarks and commit to rates that are below state averages each year. More than 180 providers — including 11 hospitals and 346 physician groups — have earned a place in the network, which officially launched in October 2020. Employees are not obligated to use these providers, but profit when they do.

What’s unusual about Connecticut’s approach is that it covers a wider range of procedures and conditions than most bundled-payment programs. Providers participating in Medicare’s voluntary Bundled Payment for Care Improvement Model (BPCI), and its successor BPCI Advanced, have focused heavily on joint replacement surgeries, while centers-of-excellence programs that drive employees to more efficient providers typically limit themselves to one-time, high-cost surgical procedures like organ transplants and bariatric surgery. In contrast, Connecticut’s episode-based payment model now covers conditions and procedures that account for as much as 50 percent of all medical spending.

Joshua Wojcik, assistant comptroller and policy director for the Connecticut Office of the Comptroller, which oversees the program, says the state has already begun to see changes in utilization patterns driven largely by providers themselves, whose contracts with the network now account for more than 10 percent, or $150 million, of the state’s annual health care spending. Specialists and primary care physicians have begun to create their own provider networks to treat back pain without surgery, for example. An ob-gyn group that manages a third of births in the state is making plans to move procedures to ambulatory care surgery centers and birthing centers. And providers are now referring patients to lower-cost facilities for colonoscopies — reducing their price by 25 percent for patients using the network. Participating providers have seen increases in visits and procedures, ranging from 5 percent to 20 percent, de Brantes says.

The state is projected to save around $15 million in the first year, generated from the discounts participating providers offer on episodes of care and the transition from higher- to lower-cost facilities. While analyzing savings has been challenging because of COVID-related changes in utilization, Wojcik says he expects savings to grow as Connecticut makes it easier for employees to find information about network providers, assess their quality, and receive rebates.

Thus far, Yale New Haven Health and Hartford HealthCare have opted not to participate in the program, Wojcik says, but the state will continue to push for contracts that put the health systems at risk for cost and quality outcomes. “We want them engaged in a contractual relationship in which it’s not just volume and fee-for-service,” he says.

Peak Health Alliance: Aligning Interests with Local Providers

Some efforts to control health care costs have extended beyond self-insured employers to include consumers who buy individual policies on health insurance exchanges. In Summit County, Colo. — home to the ski town of Breckenridge and other mountain resorts — government and business leaders in 2019 formed Peak Health Alliance, a health care purchasing coalition involving local government, some local employers, and individuals who buy insurance on the state’s exchange. In 2014, Summit County was among the 10 most expensive markets in the country for health insurance sold through the exchange. The county’s percentage of uninsured was also twice the state average by 2019. The high cost may have dissuaded those who weren’t eligible for subsidies from purchasing it through the exchange.

To understand whether the high premiums were driven by prices or patterns of care utilization, in 2018 the Summit Foundation, working with business and other community leaders, funded a market analysis based on claims data that gave the group a view of spending on inpatient and outpatient care for 90 percent of commercially insured county residents. The results were jarring. It revealed that insurers were paying the local hospital, St. Anthony Summit Medical Center, part of the Centura Health network, nearly 850 percent of Medicare rates for emergency department services. Even employers who thought they were getting sweetheart deals from the hospital for outpatient visits were paying 550 percent of Medicare rates. The analysis also showed that many area residents were traveling to Denver or neighboring counties for care.

State legislation authorizing collaboratives to negotiate on behalf of businesses had been on the books since 1994 but had gone unused. The law was updated in 2019 to allow collaboratives to also negotiate on behalf of individuals on the exchange, a potentially sizeable market given the high numbers of uninsured in the county. Peak planned to use the fee schedule it negotiated with St. Anthony Summit Medical Center as the basis for the health plan it began to offer on the exchange and to share the fee schedule with local employers. “We thought it shouldn’t matter whether you are an Uber driver or whether you work for the county — if there is a reasonable, transparent process, the hospital should get the same price for a knee replacement, for example,” says Claire Brockbank, CEO of Peak Health Alliance until March 2022. Brockbank is now director of policy for the 32BJ Health Fund, where she helps direct negotiations with hospitals on behalf of union health plan members.

Peak asked leaders at Centura Health to agree to fixed charges for most procedures, rather than offering a discount on billed charges, since the hospital could later increase the billed charge for a procedure to effectively eliminate the discount. Along with defined prices, Peak’s leaders wanted to ensure the network it established did not exclude independent provider organizations, including an ambulatory surgery center and several primary care practices. “The worst outcome would be two years from now to wake up and have no more independents,” Brockbank says.

To encourage Centura’s leaders to negotiate, Peak shared the data showing the local hospital was providing only 35 percent of the care that insured county residents received in a given year. Brockbank argued that if St. Anthony Summit Medical Center lowered its prices, more people would be able to afford insurance and the health system could expand its market share.

Mark Carley, Centura’s vice president of managed care and payor relations, says the health system was committed to finding a solution. He says prices were high for several reasons: the census of the local hospital fluctuates dramatically with the season, while staffing costs remain high, given the housing market in resort communities and the need for a full range of specialty care. Recognizing that broadening the patient base would help Centura cover these costs and meet community needs for affordable care, leaders ultimately agreed to deeply reduced fixed charges at St. Anthony Summit Medical Center as well as the Centura system as a whole.

The cost savings were dramatic. Premiums in 2020 for Peak’s plan on the exchange, administered by the insurer Bright Health, were half the rate of exchange plans the previous year. Some of the savings were attributable to a statewide reinsurance program that lowered premiums for exchange plans by 30 percent in Summit County (and by a lower amount in other parts of the state). Peak attributes the remainder of the drop — 22 percent — to the new fee schedule and network. Rates dropped by another 9 percent in Summit County in 2021, likely due to reduced utilization during the pandemic, Brockbank says. Employers, which didn’t benefit from the reinsurance program, saw their premiums fall by 15 percent in 2020 as they adopted the new fee schedule. Centura has benefited as well: approximately 80 percent of care now stays within Peak’s network, which also includes two hospitals affiliated with UC Health, the state’s only academic medical center, Brockbank says. “We think there’s been great value in that community because of our collective efforts,” Carley says.

In 2021, Peak expanded into six additional counties. Using a similar approach of targeting high-volume or high-cost procedures for price negotiations and using Bright Health’s network to fill in provider gaps, Peak brought down rates by 35 percent in the individual market. “For 2021, that translates into about $7 million in direct savings back to communities,” Brockbank says.

While the total number of lives covered by Peak plans is not large — roughly 6,500 people in the individual market and 1,700 people covered by employers (out of a total population of 139,000 across seven counties) — Peak’s plans cover a sizeable portion (60%) of the population seeking coverage through the exchange. One reason may be that Peak’s silver- and bronze-level plans have no deductibles; members pay a flat copayment for most provider visits, and mental health visits have no copayment at all.

Takeaways

The efforts we feature are among dozens of employer-led initiatives to reduce health care spending, some dating back decades. The landscape includes a handful of success stories like the Alliance, but many more failures. In a review of them, researchers at the nonprofit Catalyst for Payment Reform found success often hinges on factors not present in every market, including local executives willing to take bold action and sufficient competition to leverage in negotiations.

Still, the experiences of these four initiatives suggest the following lessons for others.

Transparency is paramount. Employers need to wrest control of medical claims data to quantify variation in provider pricing, identify targets for cost containment, and assess whether vendors are fulfilling commitments to achieve cost savings. Publicizing the wide variation charged by different health care providers — and paid by different payers — can attract attention and create leverage in price negotiations, as has happened in Indiana.

A new federal law requiring brokers and consultants to disclose whether they receive commissions from the companies they recommend to self-funded employers may help to identify conflicts of interest that may contribute to higher prices. At a minimum, to make decisions in an environment like this, Sachdev of the Employers’ Forum of Indiana says human resources departments need more expertise to optimize health care purchasing. “They need to hire people who have clinical, informatics, and finance backgrounds so they can engage in more data-oriented decision-making,” she says.

Connecticut’s experience shows employees also need information to guide them. Surveys and focus groups the state conducted revealed many employees would consider switching providers if they were offered proof from an independent third party that another provider was better. The state is now working on a tool that pairs information on the incentives employees can earn with quality data, including providers’ complication and readmission rates.

Align interests among as many stakeholders as possible. Employers need a strategy for overcoming resistance from providers, health plans, health benefits consultants, and insurance brokers who prefer the status quo. “There are a lot of players in health care and all of these people in the middle who have a business model that is not necessarily aligned with providing the best value at the best price,” says Sachdev from Indiana’s Employers’ Forum.

The Peak Health Alliance has been strategic, bringing on board allies like media, local government, and individuals who buy their own coverage, as well as employers. It has also leveraged provider competition in some counties — persuading one hospital’s executives that they could take a significant share of the market from others — but hit a brick wall in others where hospitals with high profit margins refused to negotiate. Peak has also struggled to partner with brokers who advise employers about health strategies. “Brokers and consultants get really anxious that somebody else is solving the employers’ problem for them,” Peak’s Brockbank says. “They tend to start off with ‘no’ even though we make it clear the broad range of services they provide is invaluable and we assure them they’ll get their commission or fee.”

More widespread changes may require policy reforms. Whether these initiatives could be replicated in other markets is an open question. Bundled payment programs have had mixed results, with some studies finding they are most effective when applied to surgical procedures. It also takes considerable money and effort for employers to negotiate contracts year after year.

To curb health care prices more broadly, new legislation and price regulations may be needed. For example, legislation could bar anticompetitive conduct, including the use of contract terms that prevent employers from steering employees to higher-value institutions. The Bipartisan Policy Center has proposed that hospitals in highly concentrated markets work with the Federal Trade Commission to increase local competition or face price caps that would be linked to Medicare Advantage rates. The Hospital Competition Act of 2019 and the Fair Care Act of 2019, meanwhile, call for aligning Medicare and commercial rates in uncompetitive markets. Other alternatives include capping prices for out-of-network care, which would put downward pressure on hospitals’ in-network rates, or establishing flexible budgets that cover hospitals’ fixed costs and allow for marginal increases in revenue as volume rises.

Establishing a national all-payer claims database (APCD) that captures health care claims from public and private health plans could help by shifting the burden of collecting and analyzing price data from employers to the government. If it included data from self-insured employers, a national APCD could offer a comprehensive view of spending within and across markets.

Ultimately, what’s needed are solutions that align the interests of employers, their employees, and providers willing to negotiate — something that’s not possible in all cases but can be worth the effort. “This work is not for the faint of heart,” Brockbank says. “But when you hear a day care operator say this is the first time they’re offering health insurance to all of their employees, it keeps you going when you would otherwise get discouraged.”

Authors’ note: We reached out to spokespersons for Hartford HealthCare, Parkview Health, and Yale New Haven Health; they did not respond to requests for comment.