Labor-management group targets same-day surgery - Health Care Payers Coalition of New Jersey - Coalition Report - Column

Business & Health, Jan, 1996 by Dan Wise

With inpatient charges already scaled down, a New Jersey purchasing group is counting on the strength of its numbers to put the brakes on runaway outpatient costs.

Late last year, executives of the Health Care Payers Coalition of New Jersey (HCPC) were surprised to find some of the hospitals in their preferred provider network charging more for outpatient surgery than for the equivalent inpatient procedure. The bill for an outpatient cardiac catheterization at one medical center was $2,801, for instance, but only $1,200 for an inpatient cardiac cath. At another, same-day surgery for kidney stones cost $1,260 more than the $1,908 inpatient charge.

Overall, HCPC executives calculated that average outpatient surgery costs for their top 20 diagnosis-related groups (DRGs) come to $1,935. The average inpatient contract rate for the same 20 conditions is $1,249. The New Jersey Hospital Association criticizes the HCPC figures, offering its own study that suggests such price differentials occur "on an isolated basis." But even if it doesn't happen often, "Why should it cost less to remain in a hospital overnight, or in excess of 24 hours, than to be discharged after only three or four hours?" demands David Knowlton, HCPC's executive director. The answer could be that the price of same-day surgery has only now become the target of intense negotiation between hospitals and the two-year old coalition.

Headquartered in Edison, HCPC has 55 member organizations representing 700,000 covered lives. Most are statewide, self-insured union-management health insurance trusts--Taft-Hartley plans--like the New Jersey Carpenters Fund. There are also a few employer-controlled plans, including Jersey Central Power and Light and the Grand Union supermarket corporation.

Many members were attracted to HCPC by the promise of marketplace clout. Without it, according to COO Ed Geisler, they weren't big enough and didn't know enough. Joining together to select a network with preferred provider discounts gave the plans strength in numbers and a larger pool of comparative data. The coalition is counting on that strength to convince the hospitals to cap outpatient charges.

Provider accountability was another issue, says Geisler. A former union benefit plan administrator, he uses a working man's terms to explain: "When we do a job and the roof leaks, we have to fix it, without getting paid any extra. But when a doctor did something wrong, we still had to pay full cost and then pay again for the repeat procedure needed to fix it."

HCPC used Medicare mortality and post-op infection rates, severity-adjusted by the data firm Medstat, to select network hospitals. Unlike some purchasers, the group chose its providers before it began negotiating with them. Officers also set case rates for the 30 DRGs that account for 60 percent of HCPC inpatient admissions. Thus far, the coalition has contracted with 50 of the state's 85 acute care hospitals and some 3,500 physicians, most of them affiliated with PHOs. In the little more than a year that the contracts have been in effect, some member organizations have seen their per-capita health expenditures decline by as much as 13 percent, Geisler reports.

As the group amasses more data on member needs and provider performance, it expects to move from a simple PPO to a point-of-service plan with a tighter network. It has already begun doing that for cardiac surgery, designating three hospitals "centers of excellence" for selected procedures. Patients who use these institutions will receive first-dollar coverage, as opposed to 80 percent coverage at other hospitals in the network.

In the meantime, the success of the same-day-surgery price negotiations will demonstrate the value of participation in a coalition, HCPC officers say. "We're bargaining from a strong position, thanks to our knowledge of relative costs and our representation of hundreds of thousands of lives," Knowlton asserts. Which is why most of the member organizations joined the Health Care Payers Coalition of New Jersey in the first place.