By Christopher Guadagnino, Ph.D.

Published March 1999

• React to this article in the Discussion Forum.

Cliff Shannon is president of SMC Business Councils, which is comprised of 5300 service, manufacturing and commercial businesses primarily having 25 employees or fewer. The Council’s member companies are concentrated in southwestern Pennsylvania.

PND: Can you articulate your concerns about consolidation of health care organizations in southwestern Pa.?

CS: The root concern is that double digit health care rate inflation is simply not tolerable for smaller businesses. So if you ask the question, "What is the amount of medical cost inflation per year which you’re prepared to accept?" my answer would begin with, "Tell me first how you are going improve medical care in a way that I can understand and measure objectively." I want evidence-based outcomes to inform me. Large consolidation in southwestern Pa. of hospitals and insurers has the initial promise of reducing competition, which makes it increasingly difficult for individual employers, even very large employers within this region, to affect the quality and cost of medical care in any meaningful way. UPMC or Highmark, frankly, don’t have much more pressure to behave differently when approached by a Fortune 500 corporation that’s locally headquartered than they do when approached by one of my member companies that has 50 or 60 employees. As health industry players, they’re both very large companies and they behave like large companies. In the longer run the consolidation, if it’s met by the appropriate response from employers, has the potential to make the task of improving quality of health care and addressing cost issues a bit easier. In the short run, though, I think that all of the aspects of this consolidation insofar as employers are concerned are negative.

PND: Could you elaborate on the short-term impacts of consolidations?

CS: With fewer choices, there is less competitive pressure for the one or two or three big entities to make efficiency and greater value their governing ethic. Capturing market share and reducing choice is the operating ethic of big health care players. What you get is too many of everything. Heart units are the easiest example to pick. Even a lay person can read the literature and know that the best outcome records occur at units that handle a certain number cases each year. If you continue to open new units in a market that’s not growing, you increase the number of units that won’t hit that threshold number, which means the quality of care is being diluted even as the market consolidates and the operating ethic of capturing market share runs forward. If people who do not belong to UPMC Health Plan are threatened with lack of affordable access to Children’s Hospital, the only possible result is that there will be duplicate high-end services built into the existing health care infrastructure in this region which will increase the costs overall.

PND: What changes would you like to see happen?

CS: I guess you’ve got to deal with the world the way it is. What you would like not to have occurred is for AHERF to have blown up, but that’s one of the realities we have to deal with. Large employers have got to come to grips with the fact that they can no longer operate independently and assume that their size is going to drive a deal that’s acceptable. To the extent that large players getting "discounts" was ever a worthwhile strategy, that’s all gone to hell. What we need to do is figure out the avenue to employer/purchasing coalition activity that has not existed on a broad base in our region yet but does exist in other parts of the country. I would like to have the kind of cooperation that would enable both fully- and self-insured purchasers to work together. Failing that however, if only the large players can cooperate, I think that even the smaller companies that are fully insured, can benefit. We should require that the medical community take steps to insure that best clinical practices are identified, variations in best clinical practices are minimized and information is fanned out in a way that is usable by doctors so that we get a better quality of care practice.

PND: Why should businesses focus on quality if consumers care more about choice than about quality of health care?

CS: Until we go from a defined benefit model of health coverage to one with a defined contribution by employers that enables employees to go and shop for whatever they want, we’ve got a dichotomy. A whole different set of things define quality for consumers from what defines quality for relatively large purchasers. Consumers want choice, they want excellent administrative services, they want to be able to see the doctor they want. You’ll not, in my lifetime, get to a situation where several hundred thousand individual subscribers will band together and choose actual quality of care improvements as their highest priority. However, hundreds of employers getting together—what amounts to several hundred thousand insured lives—can and should make quality of care improvement their first priority.

PND: Isn’t the goal of banding together to reduce costs?

CS: Yes, ultimately affordability of health care has got to be a driver, but the value that I get from my health care dollar is what matters most. If you ask me how much cost increase is tolerable, my answer will begin with, "Tell me what kind of care you’re going to provide." If you’re going to provide the very best care in the country and I can know that that’s so on the basis of risk-adjusted outcome measures, then I’ll pay more money for that kind of health care than I will for the kind of health care we get right now. I’m not willing to say blindly that I’m absolutely confident that the best quality of care equals reduced cost. I don’t want to say that a double digit cost increase is something we can’t tolerate ever because I can’t know what’s going to happen in medical science. But I know damn well that paying double digit for quality of care that is basically unchanging and maybe in some ways diminishing is absolutely impossible and intolerable, and we as employers should not allow that to happen.

PND: What can your group do about it?

CS: Nothing by itself. We can negotiate the terms of surrender on behalf of our member companies and that’s not very satisfactory. What we’re trying to do is work with emerging coalitions in the region to eventually come up with one to two large purchaser coalitions that will drive change. We’re working with the Pittsburgh Business Group on Health. That’s historically been a loose confederation of the large private employers in town. We’re working with the Three Rivers Health Purchasing Coalition which is a relatively new group comprised almost exclusively of public sector employers. We’re working with other small employer coalitions like ours, with different foundations and civic groups, and with health industry people. I hope that by January of 2000 we at SMC can make a decision about whether to become part of a larger purchaser coalition. But it depends on getting a reliable, valid means of measuring health care quality so that we can make informed health care purchasing decisions. It depends on working with doctors and the provider community to get in place at least the formative aspects of a clinical quality improvement program. It depends on some of the private corporate players in town coming around to the notion that joint purchasing would be in their best interest as well.

Pittsburgh Business Group on Health is probably not now a juggernaut headed toward group health care purchasing. In the foreseeable future I think that virtually all of PBGH members will go on purchasing health care services individually. The open question is whether they will agree to collect and analyze information about the quality of care to inform each company’s health care purchasing decisions. It may be that in our region that’s an intermediate step we need to try before we can even think about anything else. On the public sector side, Three Rivers Health Purchasing Coalition is attempting to move directly from the current model into one that does embrace collaborative health care services purchasing through managed care companies.

We’ve had a number of people from around the country where there are purchaser coalitions and quality improvement efforts underway come into Pittsburgh and talk to small and large groups of us. We’ve gone to various places around the country and we’ll be staging trips to four or five cities to get a first hand look at how a handful of successful purchasing coalitions work and quality improvement efforts on the provider side work as well.

PND: Can you give some examples of clinical quality improvement programs your group hopes to foster?

CS: The basic model is purchasers band together, gather validated, risk-adjusted outcome information, work with the providers to identify spots where improvements may be possible. Providers then launch intensive inquiry into those areas, identify best clinical practices and seek to impose those clinical practices across the breath of the community of providers. That’s happened in a very good project in Maine on asthma and in Florida, where they are doing things from diabetes to cardiac care. A group in Salt Lake City reduced neonatal ICU admissions by 95 percent with no change in outcomes. Those are, to my way of thinking as a purchaser, the kind of results I’m looking for. That’s money I can use on some other part of the health care spectrum, or maybe some more dollars are required.

PND: Many of the concerns you’ve mentioned are shared by physicians. How can you work together with physicians and do you plan to do it?

CS: Employers and physicians have lots of common interests in this area. What we’re trying to do is wrest control of health care from managed care companies. Managed care companies are not evil. I think that we as employers asked managed care companies to do a job and they did exactly what they were asked to do, which was wring out as much cost as they could possibly wring out. Undoubtedly we’ve passed the threshold beyond which short-term cost cutting is no longer constructive. That model has clearly outlived its usefulness. As the managed care industry becomes more and more monolithic, individuals employers and regions have less and less control over what happens. By banding together we can put the brakes on this runaway train. Doctors, through their specialty organizations, county medical societies, even state medical societies, these days lack the clout to get things done by themselves. It’s going to require some cooperation between providers and purchasers in order to effect the change that needs to be effected.

PND: What sort of cooperation, specifically?

CS: I think it requires employers, with advice from providers, to decide exactly what kind of health care they’re prepared to pay for and how much they’re prepared to pay for it. We need to insist on accountability for health care quality. The only accountability we ask for right now is cost. The only kind of accountability we’re getting right now is double digit increases. It’s going to require us to work with the legislature and the Health Care Cost Containment Council (HC4) in Harrisburg to expand the scope of what HC4 does. It’s going to require us to develop some independent regional capability for data gathering and analysis, and relying on the physician community to help us analyze the data’s validity and decide how best to use the data to effect improvements in health care quality. We’re finalizing arrangements with HC4 to provide data on five disease categories. We did not as employers go and pick the five areas where there was greatest short-term cost savings. What we did instead was sit with doctors and said we want to concentrate on five areas where the greatest number of lives are affected.

PND: The AMA has endorsed a transition from a system of employer-defined health care benefit to one in which employers give employees a defined contribution to purchase their own health care. What is your view of such a transition?

CS: I do not think that moving to a defined contribution is going to be a cure for all the deficiencies that the AMA may see in the current delivery system. I’m convinced that that kind of defined contribution model is absolutely, positively coming, whether its in the guise of some variation of medical savings accounts or something else. Large purchasers can look at the cost of health care coverage as a deductible business expense, and if you’re a corporate CEO you tend not to think about health care coverage any more often than you must. If you’re the head of a household though, health care costs are a very big part of the financial picture. I’m not so sure that the medical community is going to find that individual consumers will worry less about cost and more about the relationship of their doctor and about quality of care. The cost element may come back through individual consumers to bite you in ways that you don’t anticipate. Other unforeseen consequences could result. For example, in Minneapolis they set up provider networks that imposed requirements on behalf of individual consumers that each doctor post on a website a photograph, educational background, office hours and so on. I’m not sure that all doctors want to necessarily do that. That network saw a direct connection between patient flow and physician office hours that were posted on the website, between patient flow and doctors’ willingness to post their photographs.