Rethinking Healthcare As Usual

Arizona City/County Management Association

February 3, 2012

Rethinking business as usual

Healthcare

• Complex national problem

• U. S. does not have the best, just some of the most expensive

• Costs have been soaring for decades– 1980: 9% of GDP– 2001: 14.1% of GDP– 2012: 17.7% of GDP (estimated)

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Healthcare Perspective

• 45 million Americans without health insurance

• Uninsured & poor often can only access the system through hospital ERs– No wellness or disease management

• System a contrast of high technology on the treatment side little technology on the administrative side

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Example: Handwritten Prescriptions

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What Really Happened

• Correct Drug: Metadate ER 10 mg tablets. Metadate is a drug used in the treatment of Attention Deficit Hyperactivity Disorder (ADHD).

• Dispensed Drug: Methadone. A morphine based drug used to treat addicts.

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Healthcare Perspective2000-2009

• According to United Nations report comparing international healthcare:– Male life expectancy slid from 18th to 24th

– Female life expectancy slid from 28th to 35th

– Birth to age 5 infant mortality is in the 30’s

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Reform Efforts

• Most everyone agrees the system must be changed

• Many people involved have vested interests in keeping the status quo

• Like many public policy designs, people in power make policy to solve problems they do not experience– Consumer Driven Healthcare

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Local Government Perspective

• Employee healthcare expenses are among the largest expenditures of employers– Growing out of control & we accept it– Reluctant to upset employees with changes– Don’t want workload to change– In our organizations we have employees who

cannot afford our group health coverage or deductibles 8

Local Government Perspective

• Easy to think – This is a national problem

– We are too small to impact

– Federal government will fix

– Our costs are following national trends

• There are things we can do to reduce costs without cutting quality

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Traditional Approach

• Hire benefit consultant– Often they work for “free” taking a commission

• Each government entity designs their unique program

• City/County seeks individual bids

• Many confusing bids received, some too good to be true– They are too good to be true

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Traditional Approach

• If a vendor does not win the bid in one city/county, they have chance in another one

• No one bid has enough significance to make a big difference on company bottom-line

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Example—City of Carrollton

• 775 Employees = 1686 insurable lives

• Hired consultant for flat fee– Contractually restricted from taking

commissions, fees, rebates, kick-backs, etc. – Many area cities used the “free” consultants

• Modified benefits…but not too much

• “We could save $600k but it would be a lot of work & disruptive. You don’t want that!”

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Example—City of Carrollton

• If bidder didn’t win our business they could get Plano’s, Frisco’s, Irving’s, etc.

• Costs continued to escalate but they tracked national trends

• Businesses understand how we think based on years of experience

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Reality Check!

THERE IS POWER IN NUMBERS!!

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Quantity Buying Common

• Arizona League of Cities—U.S. Communities

• Arizona Risk Retention Pool: 74 members

• Arizona Public Employees Health Pool: 19 Members

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• The Public Employee Benefits Alliance (PEBA) was created by a group of Texas Government leaders working together for over a year to develop strategies to manage the rising costs of healthcare benefits.

• Their efforts have resulted in the creation of a purchasing alliance designed to provide political subdivisions the leverage required to effectively negotiate with benefit vendors and continue to be sensitive to the service requirements of public employees.

• PEBA’s mission is to support the individual members by providing:– Negotiation services to manage the spiraling cost of

healthcare and related benefits. – Working together through the alliance procurement

model to purchase healthcare and related benefits at a competitive price.

– The contractual negotiation will include vendor service accountability requirements.

• Committed to negotiate affordable, high-quality healthcare & related benefits and services.

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Administrative Fee Schedule

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Annual Membership

Fees2006 2007 2009 2010 2011

2011Out of Texas

20122012

Out of Texas

Late Fee

Employer

0-100 Lives $150 $150 $150 $150 $150 $250 $150 $250 $250

101-500 Lives $300 $300 $300 $300 $300 $450 $300 $450 $250

501-1000 Lives $500 $500 $500 $500 $500 $750 $500 $750 $250

1,001-5,000 Lives $700 $700 $700 $700 $700 $900 $700 $900 $250

5,001-15,000 Lives

$750 $1,250 $750 $1,250 $250

15,001-25,000 Lives

$1,000 $3,000 $1,000 $3,000 $250

>25,000 $1,750 $3,500 $1,750 $3,500 $250

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• Post Sixty-five Medicare Advantage Plans• TML IEBP Pre Sixty-five• Wellness Benefit Option• Pharmacy Benefit Management• Clinical Results Drug Management• International Medicine• TASC Section 125, FMLA, COBRA, PayDirect• Life/LTD/STD & Dental• Employee Assistance Program

Pharmacy Benefit Manager (PBM) Services

•Offered plans from two different vendors

•Since first bid in 2006 costs reduced 15%+

•Oct. 2010—Sept. 2011 more than

$3 million saved

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Clinical Results Drug Management•Clinical formulary plan created to enhance PBMs for self-insured plans•Offers formulary model that focuses on Evidence-Based research & lowest net-cost calculations•Joint-Venture with the University of Arkansas for Medical Science & the College of Pharmacy•Provider call center staffed with physicians & pharmacists•Between 2004-08 saved over $100mm for state employees & Medicaid•Over 900,000 lives utilize service today•Savings average 10%-15% total pharmacy payout

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Clinical Results Case StudyCarrollton, Texas

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City of Carrollton Clinical Results Savings

Q4-2010 Q1-2011 Q2-2011Avg Total PMPM (avg. 1,625 members) $ 63.08 $ 44.96 $ 48.47

Avg Brand Rx Cost $ 50.47 $ 21.77 $ 23.45

Avg Generic Rx Cost $ 12.91 $ 5.88 $ 6.49

Avg Patient Pay Per Rx $ 16.67 $ 14.70 $ 12.51

% Generic Rxs 68.0% 74.2% 75.7%

Projected Annual Savings: $328,456

International MedicineInternational Medicine

– Cost savings of 40%-80% over U.S. pricing– No PEPM premiums– Savings but not at the expense of QualityQuality– Ultimate consumer-choice in health care– Responds to needs of culturally diverse workforce– Quality of care comparable to leading U.S.

hospitals and their physicians– Non-covered procedures affordable for employees

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Savings to Plan SponsorSavings to Plan Sponsor

*Price Includes:

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Quality Assurance ProgramQuality Assurance Program

• All acute care hospitals are Joint Commission International (JCI) accredited and must meet established U.S. standards of excellence

• Many hospitals have affiliations with Harvard Medical, Johns Hopkins, Cleveland Clinic and others

• Physicians speak English and have demonstrated competency in their specialty and their specific procedure

• No deductibles; all expenses paid from take-off to return

• Expenses for companion covered27

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ProceduresProcedures

• Cardiac– CABG

– Valve Replacement

– Pacemaker

– Defibrillator

– Cardiac Ablation

• Orthopedic – Hip Replacement

– Hip Resurfacing

– Knee Replacement, Partial

– Knee Replacement, Total

– Shoulder Replacement

• Spine― Cervical Discectomy w/ Fusion

― Lumbar Laminectomy

― Lumbar Laminectomy w/Fusion

• Weight Loss/Bariatric― Gastric Bypass― Lap Band― Gastric Sleeve

• Women/Men– Hysterectomy– Prostatectomy

• Plastic/Cosmetic

• Dental

• Other Procedures - 55

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Employee On-Site Health Clinic

• This was a strategic goal of the City Council• Process took approximately 2 years –

reviewed every possible model• Received 7 proposals-Interviewed 4 • Conducted multiple site visits (Tulsa, OK &

Humble, TX)

Our Model

• Selected a management company • Rented a building in a shopping center –

across the street from City Hall• 1696 covered lives, including dependents• The clinic is open for 23 hours per week• 1 Doctor & 2 Medical Assistants• Pay per hour and direct pass through on

supply, utilities, rent, etc., costs• Partnership with QuikTrip convenience stores

CareATC

• Focus on wellness and preventive care• Chronic disease management• Pharmaceutical – generics and antibiotics• Personal Health Assessments– follow up by

physicians• Increased utilization• Decreased sick leave and lost productivity –

employee and dependent care• Lower long-term health plan costs for the

City and the employees

Cost

• Average cost of visit to primary care Physician vs. Average cost of Health Clinic Visit

• Cost of giving free generics vs. filling prescriptions – increase utilization of generics

• Number of visits

• Flu shots

• Lab costs

• Retention & recruitment

• Time away from work

– Employees receive 4 hours of “clinic” time in addition to sick leave

• The immeasurable – a big catch

$$$$$$$$$$$

• $500 per hour/ $156 per visit

• 3.2—3.5 visits per hour

• Includes– Staff– All supplies, including generic drugs– Personal Health Assessment– Laboratory work– Rent, utilities, equipment

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Dr. Patricia Lesczynski, M.D.

 " Working in the Carrollton Clinic setting allows the doctor to take time during office visits for focusing solely on patient care and prevention of disease versus the traditional clinic setting where physicians at times struggle with balancing good healthcare while still meeting the demands of insurance companies. I believe that this environment encourages a more consistent follow-up that in turn helps maximize the overall health of patients."

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Best Advice & Lessons Learned

• This is a big commitment, it would be very hard to take away!

• Pick a management company with a Medical Director, or get a medical degree – Company has two Medical Directors

• Be prepared to actually hear “thank you” from employees

• But, still be prepared for a bit of “entitlement” mentality

• Administrative Directives – sick leave policy needs to be reviewed

• Use of generic drugs increased 9.5% FIRST YEAR

Clinic Outcomes

• Explored options never explored– Fire Fighter & employee physicals– Partner with local business, it doesn’t have to be a

public sector partnership (QuikTrip Convenience Stores)

• If you have a diverse employee population, give serious consideration to a bilingual Physician or staff members

• Compliment a Clinic with a Wellness Program• Greatly reduced time away from work for doctor visits• Disease management improved substantially• Diagnosed brain tumor, stroke & other illnesses early

Fee For Service vs. Negotiated Price Per Procedure

• Traditional Model: Fee For Service

• Networks negotiate discount off UCR

• Reverse incentive to control costs

• No guarantee for work done– Auto mechanic pokes hole in seat they pay– Surgeon pokes hole in innards you pay

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Fee For Service vs. Negotiated Price Per Procedure

• Negotiated fee for procure incentivizes provider to do it right the first time-CHEAP

• Readmissions within X days are at the expense of the provider

• If the provider makes a mistake they eat the extra cost

• Much cheaper than fee for service40

Negotiated Price Variations Across

In-Network Providers

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CT Scan

GI Scan

Knee Surgery

• Networks and providers focus on the average discount, disregarding the base rate

• Result: individual prices vary significantly

• PCP and patient make decisions without pricing transparency

Price + Process Variation Results in Significant Episode Cost Variation

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Hospital / Systems

DRG 470 Hip & Knee Replacement Procedure Costs

Before During After Total Savings

A $1,470 $39,088 $3,216 $43,774B $1,306 $39,989 $2,442 $43,738C $2,630 $37,397 $2,864 $42,891D $793 $37,848 $1,715 $40,356E $1,277 $37,020 $1,797 $40,094F $2,013 $29,408 $2,633 $34,054G $1,041 $27,207 $1,332 $29,579Hospital G inpatient flat rate

$2,033 $14,690 $1,176 $17,899$24,398 (vs. A hospital

cost)Negotiated Case Rate with warranty

Included Included Included $20,500$23,274 (vs.

A all inclusive)

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Health Insurance Dependent Audit

• Required employees with dependent coverage to prove dependent eligibility

• Results– One employee admitted their “spouse” was not

their “spouse”– 2 employees removed ex-spouses– 2 removed children who were no longer

dependent– 10 employees did not respond; coverage

dropped

Rethinking business as usual

Questions?Leonard Martin

City Manager, Carrollton, TexasCEO, Martin Management

Carrollton, TexasLeonard@MartinMgmt.com

214-783=2783

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