Back in February — six months and untold mental eons ago — the biggest issue in health care in Colorado was lowering its price.
Hospitals were raking in record profits, state lawmakers were champing at the bit to do something about it and ambitious plans to rewrite chunks of the health care playbook dominated the legislature’s early days.
Like with many best-laid plans, the coronavirus pandemic has largely upended those efforts — most of the proposals met quiet ends at the Capitol and hospitals’ profits have turned into what they claim will be multibillion-dollar losses this year. But supporters of an innovative new model for negotiating prices with hospitals continue to push forward and say they have been making important gains in recent months — advances they say might have been even larger if not for the pandemic.
“It’s a heavy lift,” said Robert Smith, the executive director of the Colorado Business Group on Health. “We’ve absolutely been slowed down by the COVID crisis.”
Smith has been working to set up a so-called health care purchasing alliance, a group that brings employers and individuals together — basically, the purchasers of health care services — and uses their collective leverage to negotiate better deals from both health care providers and insurance companies.
He said his alliance, which aims to be statewide and is called the Colorado Purchasing Alliance, has a letter of intent from the State of Colorado, meaning, when the alliance is up and running, state employees will be able to select health plans through it. Smith said he also has letters of intent from the governments of Denver and Larimer County and several school districts.
He estimates his alliance can launch next year with as many as 200,000 people enrolled.
“So it’s not insignificant,” he said, “but that’s only a start.”
How the purchasing alliance model works
In Smith’s version of the story, the health care market doesn’t work for consumers (i.e. the people who need health care treatment) because it’s not a real market. The price is opaque. There’s no reliable connection between the price of a treatment, the underlying cost for it and the quality of the result. Alliances aim to rectify this by putting power back in the hands of patients.
These kinds of purchasing alliances must be licensed by the state, and while a number of communities have talked about forming one, there is currently only one operating in Colorado — the Peak Health Alliance, which started a year ago in Summit County and provides a good overview of how the model works.
Peak’s membership — about 4,500 people this year — includes employees of Summit and Grand county governments and the town of Breckenridge, as well as numerous small employers and people who buy health insurance on their own. With that many people behind them, Peak’s leaders were able to go to their local hospital and negotiate prices that were as much as 50% lower than what it had been charging. And, with those prices in hand, Peak then negotiated with insurance companies to get the lowest premiums it could for its members.
The end result, when coupled with the state’s new reinsurance program, was premiums that were as much as 40% lower than what people had been paying before in Summit County, while providing plans that covered more, such as mental health services.
Peak this year partnered with leaders in other communities across western Colorado and, for 2021, will offer plans in conjunction with insurance company Bright Health in seven counties — Summit, Grand, Lake, La Plata, Montezuma, Dolores and San Juan.
“I think we have proven that this is not just a model that works in rural, mountain communities,” said Tamara Pogue, Peak’s executive director. “We have a pretty diverse set of counties where we have been able to replicate this.”
Lessons learned
But Peak’s expansion has not been without struggles.
Centura Health, which operates Durango’s Mercy Regional Medical Center, initially balked at negotiating with the local alliance, throwing it into question. It also proved hard to attract support from the largest employers, which typically cover health care expenses out of their own budgets.
“In our conversations with self-funded employers, we have seen them be less willing to make changes to their plans because they are so concerned about continuing to offer the most competitive benefit packages,” Pogue said.
And Pogue said the conversation at Peak has started shifting away from focusing so much on hospital prices as the main factor in why health care costs so much. Part of that is because there are a lot of other culprits. Pharmaceutical costs and addressing inefficiencies are becoming bigger parts of Peak’s work, she said.
But the coronavirus pandemic has also made it harder for hospitals to negotiate.
“We’re concerned that in a COVID environment, this is a very difficult conversation to have,” Pogue said. “We are very aware of how fragile our rural critical access hospitals are right now, and we want to be very careful about that.”
Local or statewide?
Pogue said she believes the alliance model works best when it focuses locally. Peak’s method is to start by collecting data on local health care spending and prices. That allows the alliance to better target the things that are specifically driving up prices locally, while working with other local leaders who can help address those issues.
“It’s a collaborative approach to solving this problem,” she said.
Smith has staked out a tougher strategy of working statewide. The benefit, he said, is that a statewide alliance could have more members — giving it more leverage to change the system. It also could prevent what is talked about in health policy circles as “squeezing the balloon,” when price cuts in one place cause large hospital systems simply to charge people more in other areas.
Smith said he’s been in discussion with a number of hospital systems throughout the state, though the pandemic has been an understandable distraction for hospital leaders.
“Some are proceeding well,” Smith said of the negotiations, “and some have somewhat stalled.”
And he said the discussions, similar to Peak’s, go beyond just price, also looking at quality and efficiency.
But, by trying to build a statewide alliance, Smith will likely face a much tougher time negotiating with hospitals.
Julie Lonborg, a spokeswoman for the Colorado Hospital Association, said hospitals are supportive of community efforts to address health care prices. She pointed to longstanding collaborations on the Western Slope involving large employers or health care providers that do just this.
But she said hospitals are skeptical of a “one-size fits all” approach.
“We think they ought to be truly community-focused and community-based,” she said of the alliances. “…Just because it worked in one community does not mean you can necessarily take that exact same model and do it in another place.”
Still, Smith is undaunted — pushback, pandemic and all. He said he hopes to be able to partially launch the Colorado Purchasing Alliance by the first of the year and have it fully up and running by next July. And he said he hopes hospitals would see in his group an opportunity for meaningful change for the common good.
“Conversations strictly about the price is not what we’re trying to do,” he said. “We’re trying to do something broader, longer term and more strategic in terms of health care reform.”