Colorado, national business groups plan to negotiate directly with hospitals

Public and private employers and two purchasing coalitions are joining forces in Colorado with the aim of cutting local healthcare costs.

Larimer County and 10 other local employers—including the state of Colorado—have joined The Colorado Purchasing Alliance and Purchaser Business Group on Health to launch a regional network of excellence, with the aim of negotiating directly with health systems to set prices for common procedures. Larimer, located about an hour from Denver in northern Colorado, hopes the partnership will drop its $25 million annual healthcare costs by another 10 percentage points.

“Why are we paying almost five times what Medicare is paying for their patient care? That’s what really flipped the switch for me as a self-funded employer,” said Jennifer Whitener, benefits manager of Larimer County. “We’re funded through taxpayer dollars. We have to be good stewards of the dollars that we’re spending.”

By staying local, PBGH CEO Elizabeth Mitchell said the venture aims to offer better care for chronic conditions, and allow regional employers to enter a common purchasing coalition but still customize their individual companies’ benefits. PBGH will identify high-quality medical providers in Colorado, and the not-for-profit’s national employer members will also be able to opt in to the contracts that the local business group negotiates.

In a statement, Colorado Gov. Jared Polis said the partnership represented an “excellent opportunity for Colorado’s healthcare market to not only demonstrate its ability to perform at a national level, but, having done so, to gain business from national employers.” Eventually, PBGH aims to use the findings in Colorado to create regional networks of excellence in other markets across the nation. So far, the joint venture is responsible for buying care for 120,000 lives.

“We saw what happened with Haven, it doesn’t work when everybody’s just trying to hold hands,” Mitchell said. “We are building something they all want, and they will join it as it works for them.”

Over the next few months, the group will issue requests for proposals for health systems that offer orthopedics, oncology, maternal and mental health services. The group also aims to partner with local primary care physicians to help better manage employees’ chronic diseases. Although the group hopes local health systems will bid on the project, the purchasing coalition is not afraid to solicit competitive bids from outside the state’s borders, said Bob Smith, president of The Colorado Purchasing Alliance—particularly after health systems failed to negotiate with The Colorado Purchasing Alliance last year.

“We found that there really wasn’t a lot of interest in talking about improving affordability or quality,” Smith said. “The conversation always got drawn, like a piece of iron to a magnet, to the question of ‘Well, how much business are you gonna be send to us and how much are you going to pay us?’ We found no strong interest in partnering with the employers.”

While the group was able to partner with independent hospitals, physicians and outpatient facilities, Smith said larger health systems weren’t willing to play ball with the employer group. He said that, across nearly every metro area in the state, hospitals have merged and picked up physician practices, essentially allowing providers to name their price. He pointed to a study by the RAND Corp. that found that the average hospital in Colorado is reimbursed at nearly 255% above the Medicare rate. At the same time, he said higher pay often does not translate to a better quality of care. By working with the national employers group, Smith said he hopes to convince Colorado hospitals to this time be more open to negotiating over prices.

“If there’s no relationship between price and quality, let’s identify the less expensive, high quality hospitals and then contract with them. That’s what we’re looking to do now,” Smith said. “Will those hospitals work with us? That remains to be seen.”


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