What We Can Do With Collaboration - And Not Competition

Some time past I wrote about health care and the market.  I noted especially that when choices are negotiated, it isn’t patients who really do the negotiating.  Instead, hospitals, physicians, and insurers negotiate with one another to determine appropriate exchanges of services, reimbursement, and lives – which is to say, us as patients.

So, what would happen if the three parties got together and became partners?  Yesterday the Los Angeles Times reported on just such an event.  Three major players – an insurer, a hospital system, and a large medical practice – collaborated, and in the first year attained some remarkable results: “The collaboration among Blue Shield of California, Catholic Healthcare West and Hill Physicians Medical Group shaved more than $20 million in costs last year and prevented an insurance rate hike for public sector workers in Northern California.”  Now, these are two remarkable results.  The cost savings are remarkable in and of themselves, and would allow the various organizations to save money for patients, marginally reducing fees and premiums.  But just as important were the savings for both government employees and taxpayers in preventing the rate hike.

While the financial savings were significant, I was more interested in some of the clinical results.  For the clinical results reported, cost savings were an important measure.  However, I also they think they indicate quality care for patients.

For example, surgeries for weight loss were reduced last year by 13%.  They did it by offering guidance for better choices.  In essence, patients were taught preventive measures that so that fewer surgeries were required.  The thing is, the same measures are likely to result in fewer cardiac issues and lower incidence of diabetes.  So, the results are lower costs not only in surgeries now, but in improved health later.

Or consider that readmissions after hospital stays were reduced by 15%. The collaborators note that fewer readmissions indicate patient who were healthier at discharge. Readmissions have another consequence for hospitals.  Medicare has structured their reimbursement around Diagnostic Related Groups, or DRGs.  For a great many diagnoses, Medicare sets a specific reimbursement amount.  If the patient costs less, the hospital makes a little more money.  If the patient costs more, the hospital eats the excess expenses.  So, if a patient is healthier faster, not only has the patient benefited, but the hospital gets some financial incentive.  If a patient has a longer stay, the hospital loses money.  The thing is, if a patient is readmitted too soon after a discharge, Medicare considers it part of the same diagnosis, and so doesn’t pay the additional expenses. And it’s not just Medicare: insurance companies also use DRGs to guide their payments, especially in managed care contracts.  So, readmissions lose hospitals lots of money, and a15% reduction means the losses are a lot less. For a not-for-profit like Catholic Healthcare West, that means more money to plow back into equipment and personnel for patient care.

We might argue that there was a fourth partner involved in this.  More than three quarters of the $20,000,000 saved came from the California Public Employees Retirement System (CalPERS) because Blue Shield didn’t raise insurance rates for those covered through CalPERS.  However, this is no small thing: the costs of pension benefits are significant problems in many of our states.  Saving money in this way saves money, or saves services, for many of us.

So, this is an example of collaboration that worked. Of course, it worked precisely because the partners stopped competing, at least in this instance, and instead worked together.  They had some trust to build and some history to overcome before they could collaborate: "Our staffs had a history of combating with each other through negotiations," said John Wray, a senior vice president with Catholic Healthcare West. "We had to trust one another to make it happen. This was a very significant culture change between the organizations."  They even shared some proprietary information. This was simply not your typical “market-based solution.”  Note that it isn’t a government directed solution, either.  At the same time, it’s not competition but collaboration, not proprietary interest but partnership, that brought these results.

Maybe, just maybe, that’s a model that others can follow, so that more of us can benefit.