Twin Cities group retools the health care industry

April 28, 1993|By Ann LoLordo | Ann LoLordo,Staff Writer

MINNEAPOLIS -- After spending about $200 million a year on health care for their employees, a group of corporate executives in the Twin Cities wondered just what their money had bought. Was the care good? Were their employees healthier, off the job less?

When the results couldn't be determined, 14 companies decided to pool their money and buy a health care plan that promised answers and the best value for their health care dollar.

It was an ambitious idea that generated an ambitious response: Two competing health maintenance organizations joined with a 350-physi- cian group practice and the famed Mayo Clinic to snare the corporate business and aim for annual savings of 5 percent to 10 percent for the companies.

In the last year, Minneapolis and neighboring St. Paul have begun to see how "managed competition" -- a cornerstone of the Clinton administration's health care reform plan -- might work. The concept of consumer groups uniting to force price reductions from networks of high-quality providers may well become a prototype for the rest of the nation.

While Maryland and other states are enacting health care reforms in anticipation of the new administration's proposals, Minnesota is further ahead. The state already has saved millions of dollars in state employees' benefits by adopting a form of managed competition.

Now, lawmakers are moving to set spending goals for health care in the state and to create a system of competing networks that would offer services for all and provide data to allow comparison shopping.

"You can't buy groceries or clothes or toothpastes until you decide in your own way why you like it, and the same has to be done in health care," says Dr. K. James Ehlen, chairman of the Minnesota Council of HMOs and a member of a state health care commission. "Heretofore, we have said, 'Mrs. America, trust me, I'm your doctor' or 'Trust me I'm your hospital,' with little or no information on why we should."

Reforming the system

Minnesota's push toward managed competition comes at a time when the average cost of health care for most of its residents -- those in the Twin Cities -- already is 15 percent below the national average. The lower spending level can be attributed to the strong presence here of HMOs, which rely on primary care physicians to deliver cost-effective care, and the general good health of its population, which is majority white, educated and employed.

Even so, costs were still climbing.

That's why the 14 employers in the Business Health Care Action Group -- which includes Dayton Hudson Corp., the Carlson Companies and Honeywell Inc. -- decided to collectively purchase health care for 55,000 employees and their families from the group that won the contract, HealthPartners Inc. The companies are self-insured, which means they pay the claims generated by their workers instead of contracting with an insurer to assume the risk.

When the Twin Cities business group was ready to award its contract in July, 27 providers showed interest. In the end, the employers group decided against the traditional approach of an insurance company administering the plan and providing oversight. Instead, they chose to participate with providers in reforming the system.

"We built a model and committed ourselves to a long-term relationship with the providers, and we're working directly with them to retool the industry," says Steve Wetzell, executive director of the business health care group.

Some critics are skeptical that managed competition can work, arguing that it unnecessarily sustains the role of the insurance industry, builds another layer of bureaucracy, doesn't control costs and offers consumers stripped-down health coverage.

It's too soon to know if they're right. The results of the Twin Cities' employers' experiment -- in both costs and quality -- won't clear for several years.

But Jim Bloom, a credit manager at Carlson Companies Inc., is already counting on savings in the family budget. In March, when the new program was offered to Carlson employees, Mr. Bloom studied the 39-page booklet of providers. Both his family's internist and pediatrician were on the list.

Each doctor visit costs the family only $10, and Mr. Bloom expects to save $1,000 a year because the family no longers pays deductibles or makes copayments. "It's real money saved," he said.

If the Bloom family doctors weren't on the network list, they could still go to them. But the family would pay a $30 deductible and the company would pick up 70 percent of the cost of the office visit.

Protocols for treatment

Under its 3-year contract with HealthPartners Inc., the business group pays for care under a traditional fee-for-service format. If claims fall below a certain level, employers and providers share in the savings.

Eventually, the employers foresee a payment system known as capitation in which they would pay a set fee per worker.

How does a managed competition system reduce costs?

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