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November 3, 2009

Purchasing High Performance Archive 233a5c24-19c4-4a08-9feb-263a2324766c Welcome

Newsletter Article


Welcome to <i>Purchasing High Performance</i>

Welcome to the second issue of Purchasing High Performance, a publication designed for employers and coalitions seeking value in health care, and sponsored by the National Business Coalition on Health and The Commonwealth Fund.

When the inaugural issue of this newsletter came out a few short months ago, we pointed out that employers will play a leading role in defining the health care future regardless of what happens in Washington. Well, there's certainly a lot going on in Washington (see this issue's Perspectives on Policy), but our perspective has not changed. In this issue, we look at how a new payment system called Prometheus is helping promote coordination among physicians by paying them more for avoiding errors in their practices. Another case study looks at how one large employer cut the cost of disability claims in half simply by engaging area physicians. This issue’s feature articles offer useful tips on structuring copayments more effectively, and a much-needed explanation of the much-talked-about patient-centered medical home. Finally, in our Interview section, we talk to a vice president at Safeway to learn more about how that organization has kept health care costs constant since 2005.

As always, we hope that you will find this newsletter to be a useful resource as you work to make the most of your health care dollars and improve the health and productivity of your workforce.

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Perspectives on Policy

Newsletter Article


80 Percent Agreement on Health Care Reform

By Brian Schilling

In Washington, D.C., insiders know not to place any bets on pending legislation too early. When it comes to making law, the real work doesn't even start until bills are drafted and committees begin going through the details. Health care reform is now in this stage. Since June, all five of the Congressional committees charged with developing reform bills have done so. According to individuals on both sides of the aisle, the parties are in agreement on about 80 percent of what's at issue.

Nevertheless, it's still much too early to speculate on whether reform will pass, and if so, in what form.

Reconciling the five bills is likely to take several months, so even the most positive projections don't put a bill on the president's desk until after Christmas. Without making any predictions about the likely outcome of the debates that will surely follow, here's a short summary of the areas of agreement and the issues still outstanding.

Areas of Agreement on Health Care Reform

Controlling costs. More than any other factor, cost motivates the current debate about health care reform and there is broad, bipartisan agreement that pervasive waste, fraud, and inefficiency must be addressed. Specific proposals to address these issues range from testing payment innovations to promoting comparative effectiveness research to—controversially—setting up an independent commission that would have the authority to enact broad payment reform policies.

Wellness and disease prevention. Both parties support improving prevention and chronic disease management as an integral part of cost-control efforts. Chronic illnesses account for about 75 percent of the nation's health care tab.1 Options for improving care for the chronically ill include requirements that health plans cover care coordination and case management, tax breaks for employer wellness initiatives, supporting research, increased funding for public health programs, and extending coverage to at-risk, underserved populations.

Universal—or close to it—coverage. While the idea of achieving overnight universal coverage via an individual mandate remains controversial, both parties agree that the more people who are covered (and therefore paying into the system), the better. Thus, it seems likely that any successful reform effort will extend coverage to many millions of presently uninsured Americans. Expanding Medicaid, providing subsidies, and new employer mandates are among the possible options on the table.

Health insurance exchange. Allowing individuals and small employers to band together to buy health coverage through new national, statewide, and regional insurance exchanges has won support from both parties. Such exchanges would provide greater consumer choice and essentially extend large-employer clout and negotiating leverage to small employers and individuals.

nsurance reform. Both parties are critical of exclusions for preexisting conditions, lifetime benefits caps, and the practice of dropping enrollees who become very sick. Should reform succeed, look for these policies and practices to be more tightly controlled or abolished altogether. New rating bands will limit how much more—or less—insurers can charge people based on sex, age, and gender.

Outstanding Issues

The employer's role. Since early in the presidential campaign, President Obama has pledged to build on the existing employer-based system of health coverage, but employers still need to pay attention. Obligations for employers will change if reform succeeds: most Hill watchers expect to see either an outright requirement that employers offer coverage or substantial financial penalties on employers that don't—the so-called pay-or-play approach.

A public plan. All indications are that the bills that ultimately emerge from committee for debate on the floors of the House and Senate will include some sort of a public plan. But that is by no means the end of the story. Would such a plan be created in the near future? Would it come into being in a few years only if certain other coverage and cost control targets are not met? Would states be allowed to "opt out" of the public plan? No one knows. The public plan option has become a fault-line issue for the insurance industry and the notion will face stiff opposition going forward. One compromise could be greater Medicaid expansions.

Paying for it. Most estimates find comprehensive health care reform will come with a $1.2 trillion dollar price tag over the next 10 years. That much money doesn't all come from a single source. Among the more talked-about ideas for generating funds are: levying a tax on expensive health plans, imposing a surtax on the richest Americans, and imposing a small tax on sugary drinks (an idea that, according to the New England Journal of Medicine, could help stem obesity, diabetes, and other serious health issues). In addition, hundreds of billions of dollars jn savings are expected to come from reducing Medicare overpayments, improving payment accuracy, and expanding hospital quality improvement programs.

Medical liability reform. Liability reform proposals range from capping awards to providing some sort of "safe harbor" against lawsuits for physicians who adhere to best-practice guidelines. Capping awards would have the immediate impact of reducing liability premiums, but wouldn't necessarily drive quality improvement. "Safe haven" laws might do the opposite: encourage doctors to adhere to guidelines, but do little to curb liability costs. No one expects that reforming medical liability laws will make a substantial dent in health care costs, but look for extensive wrangling on the issue just the same.

An Upside for Small Employers?

Small employers pay about 18 percent more than their large-employer counterparts for identical benefits, which makes it hard for many employers and employees to participate. 2 Some 52 percent of employees at small firms are uninsured or underinsured.3 And for small employers, the threat of having coverage rescinded entirely after a year of particularly high claims is a disturbing reality. But according to a new Commonwealth Fund report, the bills under consideration generally contain elements that would help small employers address these issues and gain access to affordable, comprehensive coverage.

The most immediate benefit for small employers and individuals would simply be the ability to secure affordable coverage through a new health insurance exchange. By banding together thousands of firms and millions of individuals, such an exchange would put small employers on an equal footing with their larger counterparts. That, in turn, would eliminate discriminatory pricing and other questionable practices, such as excluding employees for preexisting conditions, hiking premiums due to the illness of a single worker or dependent, or rescinding policies after a year of higher-than-expected claims. Gone too would be plans with substandard benefits. Any plan offered through the exchange would be required to offer a specified level of benefits.

Small employers could reasonably expect to see lower premiums too. The Commonwealth Fund's analysis found that the administrative efficiencies and negotiating power unique to a national health insurance exchange would enable it to offer single coverage for about 25 percent less than comparable private-sector plans. Other financial incentives likely to figure into any consensus reform bill include sliding-scale premium subsidies and significant tax credits to help offset premium costs.

Everything Now Hinges On…

With the Democratic party now firmly in control of the House, Senate, and White House, the future of health care reform may well come down to whether or not the party can unite around a bill that some members will not like. If it can, reform legislation could conceivably pass without bipartisan support. As reconciled, final legislation emerges over the next few months, it will become clearer whether votes on reform will fall neatly along party lines or whether—as was the case when Medicare, Medicaid and Social Security were established—the nation's two parties will find some common ground.  

1 Centers for Disease Control and Prevention, "Chronic Disease Overview," Oct. 7, 2009,

2 M. M. Doty, S. R. Collins, S. D. Rustgi, and J. L. Nicholson, Out of Options: Why So Many Workers in Small Businesses Lack Affordable Health Insurance, and How Health Care Reform Can Help, (New York: The Commonwealth Fund, Sept. 2009), .

3 Ibid.

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Featured Articles

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What Is the Patient-Centered Medical Home?

By Brian Schilling

Primary care physicians are a vanishing breed. A 2007 survey found that only about 2 percent of medical residents planned on making general medicine a career.1 The rest, presumably, will pursue careers in a specialty, where salaries are higher and workloads more bearable. If that doesn't bother you as an employer, it should—primary care physicians are the best value in medicine. In fact, employees who have a relationship with a primary care physician will cost you about one-third less than employees that don't. 2

The sad state of primary care and the attendant consequences for U.S. businesses have been an obsession for Paul Grundy, M.D., IBM's director of health care transformation, since early 2005 when Dr. Martin Sepulveda traced the high cost of IBM's health care tab to its "flat out inability to buy good preventive care or primary medicine." But what he calls the real "nirvana moment" came when the two realized that despite IBM's active participation in a handful of highly regarded pay-for-performance efforts, they still hadn't been able to address employees' core concerns around access, convenience, and personalized attention that lead to meaningful, comprehensive doctor–patient relationships.

IMPORTED: __media_7B2F4891421F4446AAF744EC9EBCF46D_w_250_h_166_as_1.jpg Since then, Grundy has become a national champion of a new care model that seeks to rewrite the status quo: the patient-centered medical home (PCMH). The foundation of the model is ensuring that each patient has an ongoing relationship with a primary care doctor.

"Part of the goal of the PCMH model is to make it attractive to deliver comprehensive care again," said Grundy. "Most doctors want to deliver comprehensive care but the market pushes them into subspecializing and focusing on a part of the patient rather than the whole patient. And without good generalists to deliver comprehensive care and coordinate among physicians, the sick tend to get milked by a system that is designed to sell expensive services."

Of course, the PCMH model is about more than just assigning every patient a primary care doctor to coordinate care. Four medical societies have articulated core PCMH principles around issues such as:

  • improving access and communication through policies like open scheduling and e-mail communication between doctors and patients,
  • streamlining coordination of care by better integrating data systems, 
  • promoting active patient and family involvement and culturally sensitive care, 
  • adopting advanced clinical information systems to reduce errors and expand the physician's access to critical information and guidelines, and
  • revising payment systems to reward primary care physicians for taking on the role of care coordinator .

The last point is of special relevance for doctors, and explains the model's broad appeal in the medical community. "Doctors need to be compensated for non-visit-related activities such as connecting with patients electronically and coordinating with other physicians," said Melinda K. Abrams, an assistant vice president for The Commonwealth Fund's Patient-Centered Coordinated Care program. "You can't move ahead with a model like this without redesigning the payment system to support it."

Grundy concedes that the PMCH model asks a lot of primary care physicians, not just in terms of assuming responsibility for coordinating patients' care, but also in terms of adopting health IT, providing better access and learning a new way of doing business.

"The upside for providers is that they'll be compensated in a way that allows them to do things they want to do anyway," he says, referring to things like spending more time with patients, answering e-mails, coordinating with other providers, and tracking patients and populations through registries. "They'll be empowered to deliver better care."

What everyone wants to know, according to Grundy, is will it make a difference? Early reports from more than a half dozen pilot projects suggest that it will.

  • At Geisinger Health System in Pennsylvania, adopting electronic health records and aligning reimbursement incentives to support patient-centered care as called for under the PCMH model lead to a 20 percent reduction in hospital admissions and a 7 percent savings across the board in medical costs.3
  • An effort at Community Care of North Carolina found that adopting the PCMH model cut hospitalizations for asthma by 40 percent and asthma-related emergency room visits by 16 percent. The same study found that the effort saved the North Carolina Medicaid and Children's Health Insurance Program programs a combined $535 million.
  • At Meritcare Health System, a Blue Cross–Blue Shield affiliate in North Dakota, a PCMH pilot project focused on care for diabetic patients yielded a $500 per-patient annual savings. The program has since been expanded to four additional facilities and to include additional chronic illnesses. 4
  • The model has also sparked considerable interest on Capitol Hill and, in particular, at the White House. Grundy is on his way back to D.C. for his 13th briefing with administration staffers later this month. "The president is very engaged in the details of the model and I believe you'll see that reflected in his reform proposal," said Grundy.

To help identify medical groups that live up to the principles of the PCMH as articulated by the four medical specialty societies that developed them, the National Committee for Quality Assurance now offers a PMCH recognition program. About 400 practices (1,500 physicians overall) have earned NCQA recognition to date. Search for a practice in your area at  
In 2006, IBM formed the Patient-Centered Primary Care Collaborative (PCPCC), a group of employers dedicated to advancing the tenets of the PMCH model. Additional employers are encouraged to join and participate in one of the more than two dozen different demonstration projects already under way across the country.

"Every HR director, benefits manager, and CFO in the country needs to be dialed in to how health care delivery system models have a real effect on the bottom line," offered Grundy. "The opportunity to move the ball forward is very real and it is very now. You don't want your CEO asking you why you've never heard of the patient-centered medical home."

PCPCC Web site  

A comprehensive list of PCMH pilot projects  

The PCMH brochure  

1 K. E. Hauer, S. J. Durning, W. N. Kernan et al., "Factors Associated with Medical Students' Career Choices Regarding Internal Medicine," Journal of the American Medical Association, Sept. 10 2008 300(10):1154–64.
2 M. J. Sepulveda, T. Bodenheimer, and P. Grundy, "Primary Care: Can It Solve Employers' Health Care Dilemma?" Health Affairs, Jan./Feb. 2008 27(1):151–158.
3C Ledue, "Pilot shows PCMH for primary care can reduce admissions, costs" Health Care Finance News, September 11, 2008 |
4 The AIS Report on Blue Cross and Blue Shield Plans, 2009;  

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Newsletter Article


Hitting the Copay Sweet Spot

By Brian Schilling

Medical copayments—that is, the $5 to $30 you're charged every time you go to the doctor or fill a prescription—are not unlike certain drugs: effective, but often improperly used. It's no surprise, really. The science of designing and applying copays across different drugs, services, and populations is still part art. According to Dr. Michael Chernew, of Harvard Medical School, who serves on The Commonwealth Fund's Commission on a High Performance Health System and has years of experience studying benefit design, hard and fast rules don't exist. But that doesn't excuse you from putting some thought into your company's copay structure. Does it discourage the use of low-value procedures? Is it barring access to sensible preventive care and screenings? Is a $5 copay even meaningful anymore?

IMPORTED: __media_F0DD00C97F1B4A8B9848087520D948AE_w_255_h_166_as_1.jpg

Getting the copay structure just right will always involve some tinkering since every company and every covered population is different. Even if your company's benefits were created with the principles of value-based benefit design in mind, plan on making changes periodically. The right copay levels one year might not be the right levels the next year, as new drugs, therapies, and health issues emerge. While there may not be any hard and fast rules to guide you, Purchasing High Performance can offer a few simple guidelines for fine tuning your company's copays:

The $5 copay is not irrelevant. Study after study has shown that the $5 copayment generally does have the expected impact of lowering utilization. Thus, the oft-encountered $5 copay should be applied judiciously—do you really want to reduce utilization of drugs that help those with chronic illnesses manage their conditions? Be advised that $5 is sometimes too much. Zero is the right amount for high-value preventive care. In some instances, it may even make sense to pay employees to seek care or a particular immunization. Ask yourself, how much you would be willing to spend to make sure your employees were protected from the swine flu?

The copay should never be a blunt instrument. The idea that a copay of any amount should be applied evenly across all drugs, all services, or even to all employees is obsolete. Copays should be kept very low or eliminated for low-cost, high-value services and drugs. High copays are perfectly acceptable for medically non-indicated or frequently overused services or for high-cost drugs, if less expensive, equally effective alternatives are available.

Copays affect different populations differently. Race, gender, age, economic status, and medical condition are all relevant factors to consider when setting copayments. Consider who your employees are and make absolutely sure that copays are not discouraging them from seeing needed, appropriate care. One study, for example, found that copays as low as $12.50 were enough to (inadvertently) deter women from getting needed mammograms.1 Another found that copays of no more than $15 were sufficient to drastically reduce the use of necessary and appropriate children's health services.2

Copays affect utilization of different drugs and services differently. One study found that increasing the office visit copay by $10 reduced utilization by nearly 20 percent, but the same study found that increasing prescription copays by just $1 reduced utilization by over 20 percent.3 A 2008 study found that reducing copays to $5 (from about $11) increased medication compliance by 7 percent to 14 percent among patients with several chronic illnesses.4 The bottom line: test the effect your copay is having and adjust it accordingly.

The deductible is part of the same equation. According to Dr. Chernew, you must consider the deductible and the copayment together. The deductible is the amount you pay out of pocket before your insurance will pay anything. It can range from zero to thousands of dollars, depending on the plan. The presence of a high deductible may negate or counteract the effect of a lowering a plan's copayment.

Tinker, but tinker with an actuary. Don't expect that your copay structure is OK as it is, no matter how much effort you put into devising it. Review your claims and consider where there might be waste or overutilization. Does a higher copay make sense there? Think also about underutilization. What drugs or services should be free? Dr. Chernew estimates that of 100 randomly chosen companies, no more than five have done a good job of setting copays that reflect the tenets of value-based insurance design (see related article). Engage the services of a health actuary or other professional to help guide your efforts. Expertise and experience will streamline the process of developing a copay structure that does what you want it to do.

For further reading and resources on the art and science of using copays to control costs and increase quality, see the links below.

NBCH's Value Based Benefit Design Purchaser Guide  

The Center for Value Based Insurance Design  

1 A. N. Trivedi, W. Rakowski, and J. Z. Ayanian, "Effect of Cost Sharing on Screening Mammography in Medicare Health Plans," New England Journal of Medicine, Jan. 24, 2008 358(4):375–383.
2 "Increase In Drug Copay Boosts Odds That Older Adults Will Cut Back Or Stop Taking Medications, Finds Study Presented At American Geriatrics Society," Medical News Today, May 5, 2008,
3 A. Chandra, J. Gruber, and R. McKnight, Patient Cost-Sharing, Hospitalization Offsets, and the Design of Optimal Health Insurance for the Elderly, National Bureau of Economic Research Working Paper #12972, (Cambridge, Mass.: National Bureau of Economic Research, March 2007).
4 M. E. Chernew, M. R. Shah, A. Wegh et al., "Impact of Decreasing Copayments on Medication Adherence within a Disease Management Environment, Health Affairs, Jan./Feb. 2008 27(1): 103–112.

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Newsletter Article


Safeway Senior Vice President Ken Shachmut Talks about Holding Health Care Costs Steady, for Four Straight Years, Do-It-Yourself Health Reform, and $8,000 Colonoscopies

IMPORTED: __media_4EAF829F25AE46B6BD4F8C0EE9CAF320_w_100_h_133_as_1.jpg Working with Safeway CEO Steve Burd, Ken Shachmut is one of the architects of Safeway's much-talked-about health care reengineering program that has managed to do the remarkable: hold health care costs for the organization steady since 2005. President Obama frequently refers to the Safeway story as an example of what's possible for the rest of the nation with the right approach to health reform. Here, Ken talks about what Safeway did and what's coming next.

Q: I suspect that a lot of our readers want to copy the Safeway model. Or maybe wish they had four years ago. What exactly did you do?

A: In 2006, for our non-union employees, we essentially affected a near-100 percent changeover of our then-current menu of health plan offerings, which was a fairly typical, broad spectrum of traditional HMO and PPO plans. We dropped those plans and instead instituted a consumer-directed health care plan with a $1,000 deductible, which has natural incentives in it for people to make prudent choices. For instance, there's an inherent financial penalty in the plan for using the emergency room when you don't need to, and as a result, we found inappropriate ER visits dropped significantly. We also instituted a more aggressive formulary that encouraged people to use generic equivalents whenever they were available. And, we gave people an incentive to take a health risk assessment (HRA), which is something I wouldn't underestimate. It's important for people to know what their challenges are to help guide them in talking with their health care providers.

Q: And the net effect was?

A: Overall costs for that population have stayed steady, with no cost-shifting, either. Initially, overall costs actually dropped by about 13 percent. Those savings were a combination of better rates under the consumer-directed plan, lower utilization of things like the ER and lower costs for prescription drugs under the new formulary. We shared that savings with our employees and their costs went down even more—by about 25 percent. Since 2006, our costs have crept back up a bit, but not on the same trajectory as other companies. We're now spending only 2 percent more on health care for our non-union employees than we did in 2005. We're essentially even over a four-year period, while most other employers saw a 38 percent increase. These costs are all-inclusive: Safeway's contribution; our employees' premiums; and our employees' out-of-pocket expenses. There has been no cost-shifting in these numbers.

Q: So you've saved a little bit of money I gather?

A: Yes. About $150 million overall is our calculation. It gets better, though. We're projecting a slight decline in costs for 2010, which will bump up the overall savings to about $230 million. To date, our employees have received more than half of the savings. And going forward, they will continue to share in the savings.

Q: We keep talking about "non-union" employees. Does any of this apply to union employees?

A: Yes. Changes to the benefits of union employees have to be negotiated carefully and that's a slower process, but we've shared our results with union leaders and they're coming on board, more and more. The switch to a consumer-directed plan and the related savings figures refers to our 30,000 non-union employees, but the 170,000 union employees are starting to embrace elements of the plan. We have worked with our union leaders to include some elements of our new health plan into the contracts covering about half of our bargained employees. We will continue to work on this together.

Q: It strikes me that Safeway's program—moving to a consumer directed plan, setting up incentives, establishing a tight formulary, promoting HRAs—is probably not unique. But your results are. What's different about Safeway?

A: The key was eliminating other offerings. That's really unusual. Today, in northern California, we offer either our CIGNA administered consumer-directed health plan (the CIGNA ChoiceFund) or Kaiser. That's it. We would have gotten very different results if our consumer-directed plan had just been offered as one option among many. We also took a really holistic approach and raised awareness among our employees about critical health issues, related behaviors, and available resources. Most people don't know this (although, increasingly Safeway employees do), but about 70 percent of all health care issues are behavior-driven. So, education and changing individual behavior in healthy directions are really critical elements. You can't just assume that people know the ins and outs of managing diabetes or high cholesterol or back pain or cardiovascular issues or asthma. Those diseases are the enemy and you've got to talk about them, help educate people, and provide incentives to motivate healthy behavior change. That's where you make the biggest difference.

Q: President Obama talks about Safeway all the time. That must make you feel pretty good?

A: We all are gratified by the president's recognition of our success in bending the health care cost curve, while improving employee health care benefits. We believe that other companies, union trusts, and organizations can accomplish similar results, and we are available to work with them through our new health care services company Safeway Health. I encourage readers who are interested in learning more to contact me directly at [email protected]. In the meanwhile, we're not resting on our laurels. We have some things planned for 2010 and if our projections are right, we'll actually see a decline in costs next year for our consumer-directed health plan and a slight increase on the Kaiser side.

Q: What exactly do you have planned?

A: This year we rolled out Healthy Measures, a voluntary program that involves measurement around four key issues: smoking, weight, cholesterol, and blood pressure. If employees meet the targets in all four areas, they get a discount of $780 on their health coverage contribution. Employees with covered spouses, domestic partners, or a family can save up to $1,560 ($780 each for the employee and spouse), which is the maximum discount we're allowed to give under the Health Insurance Portability and Accountability Act. Healthy Measures provides strong incentives for healthy behavior, and helps keep costs low for Safeway and our employees. Next year we will extend Healthy Measures further.

Q: What's been the reaction?

A: It's been great; 74 percent of eligible employees signed up right off the bat. The nice thing is that there's really no downside to the program. You can sign up and if you pass the screens, you receive the premium discounts immediately. However, if you do not pass one or more screens, you still have a shot at the discount. When you come back a year later and meet the targets, we retroactively give you the discount. There's absolutely nothing to lose. For 2010, we will redouble our efforts in promoting the program and expect to achieve participation rates of more than 80 percent.

Q: Safeway has also recently started to cap the allowable reimbursement for certain procedures. Talk to me about very expensive colonoscopies.

A: Colonoscopies in the area surrounding our corporate headquarters cost anywhere from about $900 to more than $8,000. For the exact same procedure. That sort of price range for a good or service doesn't exist anywhere else in society except health care. Patients often have no real idea what services cost and not much incentive to help control costs. Safeway publishes a list of colonoscopy providers along with the approximate price and lets the employee choose where to go. But we only pay up to about $1,500, which is the amount you need to spend to obtain what quality data indicate is a good colonoscopy. Employees are still welcome to go wherever they want, but if they choose a more expensive site they'll pay the difference. And the difference does not get counted towards their out-of-pocket limit. It's their choice and it's their money.

Q: So, without naming names, has anyone at Safeway gotten an $8,000 colonoscopy lately?

A: No. No surprise here. Transparency works.

Q: Safeway CEO Steve Burd established the Coalition to Advance Healthcare Reform, which is very much in favor of health care reform and of universal coverage. That's atypical for a big business. Is Safeway alone here, or do you think we're seeing a shift in the politics of health care?

A: We're not alone. There are over 60 companies in the coalition and we operate in every state. Several million people are employed by those 60 companies, and many more when you count covered dependents. Everyone reading this is welcome to join. Go to to learn more.

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Case Studies

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What Does Rockford, Illinois Have to Teach the Country about Health Care?

More than 100 mostly small employers in Rockford, Ill. now participate in a demonstration project to test the Prometheus payment model, which promises to reward doctors and hospitals for delivering high-quality care. However, unlike many of the pay-for-performance efforts that preceded it, the rewards don't accrue simply from delivering good outcomes, but rather from avoiding bad ones. The Prometheus model also promises to give employers the information necessary to fairly and productively negotiate reimbursement rates with providers.

Not long ago, François de Brantes held a comfortable job as manager of health initiatives at General Electric. Today he heads a startup named after a mythical Greek hero who, as punishment from an angry god, gets his liver eaten by an eagle every day for 30 years. The gods have been kinder to de Brantes. In the three years since he launched Prometheus Payment, Inc., he's gained national attention for devising a new model for compensating health care that promises to do what might seem impossible: pay good doctors more, improve quality, and save money overall. The model is no longer just a good idea on paper—three pilot projects are currently under way.

What's new about the Prometheus model is not the idea of paying a flat fee to cover all treatments and expenses for a given illness (i.e., bundling payments) or promoting integration or establishing rewards tied to quality metrics -- though it does all of these -- but the practice of paying doctors for not doing something: making mistakes. According to one white paper, the real opportunity for doctors and hospitals to do well under Prometheus, according to the organization's Web site, "is to avoid making avoidable medical mistakes."

To avoid those mistakes, doctors, hospitals, and labs must improve in two areas: communication and management. The fragmentation of the medical system is frequently cited as one main source of poor quality and runaway costs. It is not unusual for dozens of providers and three or four different institutions to be involved in the care of a patient with multiple health issues. As a result, tests are repeated, contraindicated drugs are prescribed, communication between providers breaks down, and mistakes are made. In systems where data don't flow freely and where providers don't talk to one another, no one fares very well, least of all the patient.

On the Ground in Rockford

There are three ongoing Prometheus pilot projects – in Minneapolis, southeastern Pennsylvania, and Rockford. At first glance, Rockford seems an unlikely choice. The city was once the global center of the fastener industry (i.e., nuts and bolts) and it had the highest per-capita rate of millionaires in the nation. That was in 1940. Today, when Rockford makes national news, which is rare, it is typically weather-related and it is never good. It is no one's expected locus of health care innovation. Rockford is small and unremarkable, and therefore the perfect proving ground for a payment model that must work in hundreds of other small cities across the U.S. If it won't work here, it probably won't work.

Rockford is a city of about 150,000 people with few large employers of the sort that typically engage in efforts to control health care costs or improve quality. But, the hundreds of smaller employers in the region are organized through the Employers' Coalition on Health (ECOH) in a way that gives them both clout and options. Coalition member Jim Knutson, human resources director for Rockford Achromatic, a 100-employee aftermarket auto parts supplier, initially thought Rockford would make a good pilot site for Prometheus.

"Through the area business coalition, employers in Rockford have been doing direct contracting with the three area medical systems for years and we've built up a good relationship," said Knutson. "And the vendor we use to administer claims also had real interest in adapting its systems to process bundled payments. Those two things helped make Rockford an ideal site for a pilot."

Beginning in 2006, Knutson, de Brantes, and ECOH executive director, Paul Brand, began talking up Prometheus to see what sort of traction they might get.

They got a lot.

Employers were almost universally supportive, if at times skeptical that providers and health plans would agree to get along. Nearly every Rockford employer had long since come to the conclusion that fee-for-service simply doesn't work any more. According to Brand, the general perception was: "If you incent volume, you get volume." Years of escalating cost data backed the theory.

Area physicians were a receptive, if less enthusiastic, audience as well. According to Brand and Knutson, most of the medical groups in the area viewed accepting bundled payments and partnering with area hospital systems as part of their future anyway. That made participating in the Prometheus pilot an attractive, low-risk way to get their feet wet, see what kind of burden would be involved, and evaluate how they would fare financially under the new scheme. The fact that prominent members of four leading medical societies helped develop the reimbursement models also helped sell them on the Prometheus concept.

Hospitals were another story, entirely. The status quo had treated them well enough and experimenting with untested reimbursement schemes was not high on anyone's to do list. After hearing the initial Prometheus pitch, one hospital executive dryly asked, "When are you going to tell me the good part?" The reaction was not unexpected. At least on the surface, hospitals may appear to come up short under Prometheus. From the hospital's perspective, fewer mistakes translate into less to billable services, reduced revenues, and lower margins.

The hospitals quickly came around and are now among the more enthusiastic Prometheus participants. To understand why, it's necessary to look a little more deeply into how Prometheus works.

How Prometheus Works

As payment models go, Prometheus is unique in that it rewards providers for not doing bad things. "Bad things" are defined as avoidable medical mistakes, like revolving hospitalizations for patients with chronic heart failure, allowing a diabetic's glucose level to spike, or failing to prevent a postsurgical infection. If the idea of rewarding a nonevent isn't intuitively attractive, you probably haven't had one of these "bad things" happen to you or an employee. Regardless, the point of rewarding nonevents shouldn't be lost on anyone: it saves money and gives hospitals and practitioners a very powerful incentive to deliver high-quality, efficient care. In fact, under Prometheus it's the only way they make significant margin.

In practice, here's how Prometheus works:

Step 1. An expert panel establishes an evidence-informed case rate (ECR) for a particular illness or condition. This is essentially a calculation of the resources needed to deliver all the care by all providers and institutions to correctly treat an individual with that particular condition. ECRs are adjusted for severity and other factors, and exist only for conditions where robust, agreed-upon national clinical guidelines or expert opinion have been established. Thus far, 17 ECRs exist, including ones for several of the nation's most expensive and prevalent conditions. For a full list, click here. It's important to note that ECRs include a reasonable profit margin

Step 2. ECRs are calculated for a patient by 1) adjusting the fee to reflect the patient's health, 2) applying the fee schedules negotiated between the payer and the provider, and 3) creating an allowance for potentially avoidable complications. For example, a patient with chronic obstructive pulmonary disease might have a total calculated ECR of $15,000, which includes a $2,000 allowance for potentially avoidable complications. For doctors and hospitals that avoid making a mistake while treating that patient, the $2,000 is pure profit. These incentives are withheld until the end of the year when claims and care can be analyzed in aggregate.

Step 3. Participating patients, providers, and hospitals interact as usual, with providers and hospitals receiving (up front) their share of the base ECR for any patient with a condition for which an ECR has been defined.

Step 4. At a specified time, incentives are paid out, based on whether mistakes occurred and whether providers followed good clinical protocol. To get the full incentive, a provider must score high in both areas. It is important to evaluate whether guidelines were followed because it is possible, in the short run, for providers to achieve good outcomes without following good practice, essentially by getting lucky.

If the model seems complex, the bottom line for hospitals and providers is not: avoid mistakes, make more money. De Brantes and company estimate that high-quality providers will realize significantly higher margin under Prometheus than under any competing system. "A hospital is a lot better off getting an $8,000 incentive that is 100 percent margin than it would be billing $20,000 for a medical mistake that is only 20 percent margin," notes de Brantes. "You make more money getting it right than you do getting it wrong—that's the way it should be."

Prometheus in Practice

The Rockford pilot is presently limited to three ECRs – diabetes, hypertension, and coronary artery disease. Data are now flowing between providers, hospitals, and employers, but the first formal reports are not due until the fourth quarter of 2009. De Brantes expects that both bundled and incentive payments will begin in earnest in early-to-mid-2010.

Because Prometheus is still in the testing stage, convincing data and anecdotes about impact on quality do not yet exist. Those will be available in about a year. In the meantime, it is easy to see that Prometheus has been designed to favor systems that do a good job of coordinating care among all the various players.

De Brantes, though, is quick to point out that Prometheus is not, in any way, prescriptive. "Prometheus can work equally well in systems where hospitals actually own the medical groups that feed into their system; or in completely unintegrated systems, where they don't. The only thing that's required to thrive under Prometheus is a good process for coordinating care," he said.

De Brantes expects that aligning payment reform with delivery system reform will lead to meaningful change. "Changing the delivery system and hoping the old [fee-for-service] payment system will support the new model is simply naive," said de Brantes. "And changing the payment system without changing the delivery system is basically pointless. We need to do both to make real progress."

Early Lessons

With real outcomes still a year away, this much can be said: from a process perspective, it works. The first nine months of the pilot in Rockford have confirmed that data flows through the system in the expected manner and that the administrative burden for participants is very low. All the systems and software necessary to track patients, analyze care, and distribute monies already exist, thanks to grant funding received by Prometheus Payment from the Robert Wood Johnson Foundation and the Commonwealth Fund. Doctors and hospitals are required to report on various performance measures, but for the most part, Prometheus relies on measures they already use.

De Brantes is pleased to have confirmed the model's seaworthiness. "The model floats," he said. "In a year we'll be able to measure headway."

For employers, Prometheus is already delivering real value already in the form of data that will be useful for negotiating with providers and hospitals. "It's a real game changer," said Knutson. "Prometheus gives us data that show which groups and institutions are delivering value. We'll be able to negotiate our contracts accordingly."

But for all the apparent buy-in to the Prometheus concept in Rockford, in the broader health care community. the model still has the uncomfortable virtue of being not-quite-anybody's idea of the perfect reimbursement system. "That's the sweet spot," said de Brantes. "You don't want anybody to be too ecstatic about what you're doing, or you're doing something wrong."

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Newsletter Article


Taming the #1 Cause of Disability Claims at Navistar, Inc.

By Brian Schilling

The workplace has never been kind to the back or neck, which together account for about 18 percent of all workplace-related disability insurance claims.1 The extremities—fingers, toes, hands—also suffer the workplace poorly, accounting for another 9 percent of such claims.2 Humans may better adapt to the workplace in another few millennia, but in the meantime, employers may do well to follow the example of truck manufacturer Navistar, Inc., which saw a 45 percent reduction in per-claim cost at its Ohio manufacturing facility between 2004 and 2006. Their secret: talking to area doctors.

In 2001, Navistar determined that nearly two-thirds (65%) of companywide disability claims were musculoskeletal-related claims from employees at its Springfield, Ohio manufacturing plant. The company determined that employees with such injuries were not always adequately diagnosed or treated. The lapses in care were all too typical: some employees were not referred to specialists when they should have been, others were when they didn't need to be, and still others got unnecessary prescriptions for painkillers that delayed their safe return to work.

Company medical director Dr. Thomas Ehni believed that reaching out to area physicians might go a long way toward improving care for Navistar employees. He and a team of researchers from Pfizer developed a three-year, three-stage plan to try to reduce musculoskeletal disability claims. Briefly, the program involved the following:

Stage 1: Identify area physicians typically involved in treating musculoskeletal disorders. Invite those and other physicians to attend a diagnostic training seminar, based on guidelines from the American Academy of Orthopedic Surgeons (AAOS), developed by Springfield-area specialists. The seminar featured education on appropriate care for various injuries and conditions. Share employee job descriptions with physicians to help them better determine when employees could safely return to work.

Stage 2: Distribute AAOS-developed clinical practice guidelines specific to injured employees to treating physicians. Conduct additional diagnostic seminars. Encourage area physicians to direct employees to use on-site physical therapy facilities.

Stage 3: Communicate with area physicians to encourage them to prescribe safe, over-the-counter pain relievers rather than more dangerous opioids whenever appropriate.

The program worked. Specifically, over the three-year period of the study, work-related injuries dropped 75 percent, days lost per injury dropped by 21 percent, average medical costs per injury decreased by $2,169 (or 45%) and use of the company's physical therapy facilities increased by half. The absence of any concurrent program to make jobs safer or to help educate employees about avoiding injuries makes the study results all the more impressive.

"The drop in [musculoskeletal] disability claims costs can really only be attributed to our staged program," said Ehni. "And that drop reflects our employees getting better care."

Ehni was quick to offer would-be copycats a word of advice. "Do everything at once," he recommended. "There's really no need to unroll the program in three one-year stages. The point is to get to the end game of reducing disability claims as quickly as possible."

There's more good news: in the three years since the study was originally published, the results have held up. According to Dr. Ehni, accidents, claim volume, and per-claim costs at the Ohio plant are all still well below 2004 levels.

Related Link:
Read the full study at the American Journal of Managed Care.

1 HIAA Source Book of Health Insurance Data 1999–2000.
2 Ibid.

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News Brief

Newsletter Article


Need Help Selecting a Wellness Program?

IMPORTED: __media_5D22652D9B0945A7AF61CF904FFC5C5B_w_250_h_166_as_1.jpg A handful of wellness programs have earned accreditation recently from one of the two national organizations that offer related assessment programs: the National Committee for Quality Assurance (NCQA) and URAC. About 77 percent of large employers currently offer such programs, most with the hope that they’ll help control medical costs. While neither NCQA nor URAC purports to assess the return on investment of the wellness programs they review, both look at other important measures, like how effective the programs are at engaging employees, coaching employees on wellness and health issues, keeping data confidential, and conducting health appraisals. NCQA reports that 16 organizations have earned—or are in the pipeline to earn—its seal of approval; a dozen are engaged in the URAC process.

Related links:

NCQA's Wellness and Health Promotion Accreditation Program  

URAC's Wellness Accreditation Program  

An Essential Health Promotion Sourcebook for Employers Large and Small (Publication of the Partnership for Prevention)  

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Editorial Advisory Board and Steering Committee

Newsletter Article


Editorial Advisory Board and Steering Committee

Editorial Advisory Board

François de Brantes, M.B.A. , Chief Executive Officer, Bridges to Excellence
Paul Fronstin, Ph.D., Director, Health Research & Education Program, Employee Benefit Research Institute
Robert Galvin, M.D., Director of Global Health, General Electric
Cheryl Koopman, Vice President, Human Resources, Richards Industries
Peter Lee, J.D., Executive Director, National Health Policy, Pacific Business Group on Health
Laurel Pickering, M.P.H., Executive Director, New York Business Group on Health
Martin Sepulveda, M.D., Vice President for Integrated Health Services, IBM

Steering Committee

Andrew Webber, President and CEO, National Business Coalition on Health
Barry Scholl, Vice President for Communications & Publishing, The Commonwealth Fund
Stephen C. Schoenbaum, Executive Vice President for Programs, The Commonwealth Fund
Sharron DiMario, President & Executive Director, Employer Health Care Alliance
Carly McKeon, Director of Membership & Communications, National Business Coalition on Health
Brian Schilling, Lead Writer
Amanda Jo Greep, Communications Associate, The Commonwealth Fund
Doug Ward, Web Developer, The Waters Ward Company, LLC

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