Coalitions and spiraling health care costs - businesses trying to control medical care costs through health care coalitions - Health Care Coalitions: Strength in Numbers - column

More than $120 million! This is the cost of 3 million shares of Federal Express stock, or the approximate revenue from delivering 7-1/2 million packages or letter via FedEx. It is also the amount the company is projected to spend this year to provide health care coverage for its 72,000 U.S. employees, plus their family members.

Health benefits, including medical, dental, and vision care, are an integral part of the Federal Express. benefits package. The escalating cost of providing these benefits to current employees, as well as to future retired employees, represents a formidable challenge for Federal Express.

This serious financial concern is one shared by all U.S. companies. Assuming an employee growth rate of 5 percent per year and a 12 percent medical cost inflation rate, Federal Express' annual expense by the year 2000 would be more than half a billion dollars!

Today, providing health benefits alone can cost companies more than 10 percent of their payroll. These costs have doubled or tripled the general inflation rate over the past five years. To help contain health care costs, Federal Express has implemented plan design changes and cost containment features, and has established administrative programs to manage health care costs more effectively. In addition, six years ago, the company helped organize, and became a charter member of, the Memphis Business Group on Health, a health care coalition.

Memphis coalition

The Memphis Business Group on Health (MBGH) is a not-for-profit, all-employer business group. Operations began in 1985, when major companies in the Memphis area felth an organization was needed to concentrate efforts in the management of health care costs. Because of their common concerns, Holiday Inns, First Tennessee Bank, Malone and Hyde, and Federal Express became the charter members of the Memphis Business Group on Health. Today, MBGH is an alliance of 29 member companies representing over 30,000 employees in the Memphis area--75,000 people, including dependents. On a nationwide basis, the service of MBGH cover about 130,000 people, including employees and dependents.

Very early in the building process, it became apparent that employers, even the large, successful Fortune 500 companies, were not as sophisticated about health care management as they were about other areas of their businesses. The companies had very little data to use in making critical benefit decisions.

The lack of substantive information is a common problem when a coalition process begins. There has been an evolution in the evaluation process over the past few years, however, from one which focused on costs ot one with a more integrated evaluation approach.

Cost was of primary importance at the beginning of our coalition because costs were the reason that employers formed MBGH. As companies have matured in the evaluation process, they have begun to look at differences in health care products and services to determine if significant quality differences off-set cost variances.

Empty hospital beds

In Memphis, there are 15 large hospitals and another 20 to 30 hospitals in the surrounding area. Basptist Health Services, headquartered in Memphis, is the largest not-for-profit hospital system in the world. In 1986, there were a high number of empty hospital beds, and the market was prime for a coalition to thrive. At the time MBGH was forming, the hospitals and other health care providers resisted activities being undertaken by the group.

In the beginning, only one major hospital system submitted a bid to contract with MBGH. Fortunately, it was a hospital that had the reputation of being a very cost efficient provider. MBGH signed a two-year contract with the Baptist Health System.

At the end of the contract period, every Memphis hospital wanted to work with MBGH and offered the group a variety of options, including per diem, discount, diagnosis related groupings, and other arrangements. Because of satisfaction with the PPO, MBGH contracted with Baptist for an additional three years.

Mission

The mission of MBGH is to exert a moderating influence on rising health care costs in the community without sacrificing quality or access to medical care. The group sponsors a wide variety of activities, programs and methods to achieve this objective. Following are several of the strategies:

* research and review of legislative actions concerning health care;

* negotiation of cost effective preferred provider organizations;

* a comprehensive nationwide MBGH utilization review program specializing in discharge planning and case management to insure quality treatment in appropriate settings;

* psychiatric and substance abuse treatment management programs providing most appropriate care and effective use of benefit dollars;

* Workers' compensation and disability management programs with a strong emphasis on return-to-work case management and safety and prevention programs;

* healthy lifestyle promotion;

*informational support between members that provides alternatives for controlling health care costs by exchanging management techniques and policies; and

* a nationwide database to collect essential information needed for rational health care decisions by employers.

Information systems

For health care cost containment and quality review to be effective, accurate information must be available to companies. This information is essential for making decisions regarding benefits which have strong impact on the future.

MBGH strives to provide comprehensive information to member companies. The group uses multiple information systems to ensure an objective view on health care data issues. Important data sources include:

* how a specific community's health utilization patterns compare to similar communities;

* which hospitals consistently charge competitive prices for services;

* which physicians consistently provide services at a reasonable cost and keep the number of days for a hospital stay at a minimum;

* what diagnoses and procedures result in employee and dependent admissions; and

* what changes in health benefit plans are indicated to achieve significant cost savings or better quality options.

Through continued efforts of the group's members and staff, there will be ongoing review of legislative action and proposals on health-related issues. MBGH will examine the potential of establishing a multiple employer trust for small businesses. Additional wellness programs will be designed to encourage preventive medicine. New employee education programs and expanded report will increase efficiency in the utilization review program.

Of particular importance are plans to review the current PPO arrangement. MBGH is developing a plan for establishing a community database which allows provider selection based on quality and outcome measures instead of contracting with a single PPO entity. This expanded data system will provide employers with considerable savings and trend statistic to enable them to provide quality medical care at the most efficient cost. The group also will implement plans and programs to increase employee awareness of PPO procedures and will counsel members on achieving increased employee participation in the PPO.

To survive as a business group, MBGH must keep looking at the big picture to be ready for changes in the marketplace. To prepare for these changes, the group is expanding into areas other than medical benefits, such as workers' compensation and psychiatric case management.

Why start or join a coalition?

Belonging to a health care coalition offers a number of advantages. Coalition assist companies in gaining expertise in health care management by providing a forum for employers to exchange ideas and work with health care professionals to jointly resolve problems. The coalition often points out needs that employers don't realize they have, and provides resources for meeting those needs.

For example, MBGH has had a directo impact on rates for Cesarean sections in the Memphis area. Through the group's efforts, a highly specialized pregnancy monitoring system has been developed. The benefits of this system are two-fold. First, through careful monitoring during pregnancy, the system helps avoid Cesarean sections altogether. It also helps mothers have healthier babies at birth. MBGH enables Federal Exress to get involved with problem solving and to be truly proactive in community health care problems.

Belonging to MBGH assists Federal Express in establishing a network among employers to develop and share data and exert a moderating influence on health care costs. It saves the company money because the PPO increases negotiating power with local providers.

Membership in a coalition provides companies assistance in educating employees and family members about purchasing health care products and services. Increased and improved education enables employees to become more prudent, cost conscious, and responsible consumers of health care. Without the understanding and support of employees, the financial ability of companies to continue providing health care benefits is seriously in jeopardy.

How does a company start a health care coalition? As good beginning is to visit a business group which is already established and gather "how to" information. The Washington Business group on Health can provide information and idea exchange. As plans progress, it is very important to involve CEOs, COOs, and CFOs of key local companies, because top-level support is essential to the success of organizing a coalition.

Quality service

Federal Express has always been committed to providing customers with quality service, and in 1990 we were honored as the first service company to win the Malcolm Baldridge National Quality Award due to employee efforts to achieve 100 percent customer satisfaction.

Membership in the Memphis Business Group on Health supports Federal Express' quality objectives. By helping employees and their families obtain the highest quality health care possible, and ensuring that the care is both appropriate for the individual and cost effective, Federal Express is providing a quality service for its "internal" customers, as well as its external customers.

James A. Perkins is senior vice president of personnel, and Bonnie M. McKeever is managing director of employee benefits, at Federal Express Corp., Memphis, Tenn.

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