Update on PAG Healthcare Alliance

July 13, 2005

Physicians and Employers/Employees should deal directly regarding healthcare costs, not through third parties like HMO’s or insurance companies. Employers around the country are forming alliances like the Smart Buy Alliance in Minnesota (more on that later), intent on purchasing quality medical services at a lower price, but these alliances continue to make physicians the objects of their efforts rather than partners in their efforts. Employers want to spend less on healthcare. Physicians want to receive more in reimbursement for services. Both goals can be accomplished by eliminating the middlemen.

To date PAG has spoken to representatives of Lubrizol, American Greetings, Sherwin Williams, Parker Hannifin and Jo-Ann Stores. Northeast Ohio should become a testing ground for a concept where all businesses and all physicians band together in a non-profit corporate structure to makes healthcare costs decisions. Physicians would provide usual and customary fee guidelines for services in their area. Employers would form a single self-insured entity that determines the financial pot of monies to be spent on healthcare for a given year. The PAG Physician/Employer/Employee Alliance could then drive fair two-sided negotiations regarding compensation. No more one-sided usual and customary fee determinations. Why would employers be interested? Because it will save them money.

Restoring competitiveness in the marketplace is a key element in this new system. There would be no panels and every physician in northeast Ohio would be automatically included in the Alliance. Any employee could see any physician in northeast Ohio and every physician would receive reimbursement. For ordinary and non-urgent services physicians could charge a fee higher than what the Alliance would pay. They could balance bill the employee. All fees would be readily publicized, perhaps on the Internet, so that employee patients would be free to choose who they wanted to see. Balance billing would not be allowed for emergencies, high-end care (e.g. major surgery or complicated cancer care), or where services in a region are limited. Reimbursement rates would be higher than they are now. Patient visits would be based on physician reputation, locale and price. Not every physician would be successful, but those who are would be able to afford to stay in business.

Utilization of services would be reduced because employers would place the cost burden of low end care on the employees. This would not cost more to employers or employees. It would merely require a drastic change in thinking by shifting to higher deductibles for high end coverage. The Northeast Ohio Multi-corporation Self-Insured (call it “NOMSI”) healthcare insurance company would pay for high end care (e.g. major surgery or highly specialized care). Cash coupons provided by employers and controlled by employees would pay for low end care (e.g. office visits or minor elective surgery). If an employee uses up his low end cash coupons by over-utilization of healthcare services he has to pay out of his own pocket. If he uses up his coupons by using more expensive providers he has to pay out of his own pocket. This would significantly limit unnecessary services and costs.

Put purchasing power back in the hands of the employee/patients. Put competitive pricing power back in the hands of the physicians. Let value for services determine success.

The state of Minnesota has joined with private business and labor groups to form a “Smart Buy Alliance” promoted by the governor and endorsed by the Chamber of Commerce. Its goal is to put consumers back in charge of health-care decisions, improve quality and lower costs. This would be accomplished through four strategies:

1. Aggressively upgrade technology used by providers (e.g. portable electronic medical records).
Provide detailed data bases that allow consumers to shop and choose and compare cost and quality of services.
3. In the same way that businesses stipulate specifications for parts and equipment they buy, so too should they be able to stipulate uniform specifications for healthcare services that they purchase for their employees.
4. Demand that healthcare providers meet specific standards of care.