Will local medical merger reduce cost of benefits

July 24, 2009
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What effect the merger between Spectrum Health and Michigan Medical PC will have on costs for employers and employees should play itself out in the immediate future, as should the business result for competing health insurers.

But at least one benefits consultant thinks the union of the region’s largest medical system with the area’s largest physicians group has a potential to lower charges for care and produce outcomes of a higher quality.

Tom Cole is a principal with P3HR Consulting and Services LLC who has 40 years of human resources and executive management experience that includes designing health-benefit packages for large companies. Cole listed a handful of decisions the organizations will be faced with and said the choices they make will largely determine the cost and outcomes issues.

“One is, if they manage for efficiencies and not revenue. What I mean by that is, all of these organizations are businesses. Now, the hospital is nonprofit. But MMPC isn’t. So they kind of have a different agenda, and you have to have sales to pay your expenses,” he said.

“But I think that having this all together and integrated, and if it’s managed efficiently, could produce cost reductions for employers and employees and, therefore, insurers would pay less in claims. But only if they go at it from an efficiency view.”

Cole said another contributing factor to reducing costs is for the hospital and doctors to establish procedures based on proven outcomes. That can be accomplished by reviewing the medical data to find out what works best and what are the most cost-efficient procedures given certain diagnoses. It’s a method that could lower costs — maybe even dramatically — because fewer tests would be ordered.

“If you look at all those pieces and ask why, then you can manage it from that standpoint — as opposed to running all these seven tests on every one of these patients that comes in, when we know that only two of the tests are really of value,” he said.

“If you do it on proven outcomes, then the procedures get pretty standardized. That doesn’t mean you don’t make judgments, but you start from this rather than just repeating all the stuff over and over again.”

Cole said basing procedures on proven outcomes can also cut costs by reducing redundancy and unnecessary care, just like the health maintenance organizations did in the 1980s, and he thought the Spectrum Health system is large enough to be able to do that. Because of its size, Cole also felt the system could be more open as to what is being done and at what cost.

“An individual physician group might not have the system or the management to start trying to gather information that will show where the dollars are spent, why they’re being spent, what their value is. So it’s one of those things where transparency is a big opportunity here, which then can reveal where there might be problems, and then you can get rid of those problems,” he said.

“And, again, these should be measured against outcomes.”

Another element Cole mentioned that could reduce costs is one that President Barack Obama has repeatedly called for, and that is to improve the medical-records system and access to it.

“By having a larger, centrally focused type of thing, I think records can be better maintained and be more accessible, which means information can go out faster to everybody, whether it be a radiologist, a surgeon, somebody doing billing or a nurse,” Cole said.

As for the competitive effect the merger — which aligns a more than 200-doctor physicians group with a health system that operates seven hospitals — will have on insurers, that is another issue that will be made clearer in the coming months and years.

Spectrum Health owns Priority Health, a health-insurance plan that has roughly 500,000 members and arguably receives the best rates from the system. It’s expected that MMPC doctors will refer almost all patients to a Spectrum facility. So, will the addition of MMPC to the Spectrum family mean more business for Priority Health and make it more difficult for other insurers to compete in this market?

“I don’t really know. I suspect it will depend upon how Spectrum/MMPC ends up pricing their services — what charges they have and what discounts they give to other insurers,” said Cole.

Cole said it used to be that a health insurer would go to a doctors group and promise volume business through the plan’s preferred provider design if the physicians agreed to cut prices by a certain percentage.

But now, Cole said he wasn’t sure if there is such a straightforward connection between volume and discounts. He thought it may be more a matter of pure negotiations, because many of the more-active insurers in the market have a fairly large number of subscribers.

“I guess what I would say is, since Priority is one of the largest insurers in the area, it seems that they would get the biggest discount. So that would seem to be disadvantageous to other insurers. I don’t know,” he said. “But I think it’s going to be beneficial to (Priority). They are a business unit, along with the hospitals and the specialists. … If there is an advantage for Priority to be part of paying hospital bills, then there is the same kind of advantage to now paying doctor bills.”

It will be some time before the effects on cost from the merger become readily apparent; how long is anyone’s guess. Cole has been part of mergers, just not in the medical field, and he said the affiliations start out smooth enough but then can hit a few bumps when it comes time to iron-out the details. He likened the process to peeling back an onion where something new can be discovered at every layer.

The first layer seemingly requires MMPC to shed its for-profit status, likely a key attraction to its formation and growth, and become a wholly owned nonprofit subsidiary of Spectrum Health, a nonprofit provider. The initial target date for that to reportedly happen is Aug. 1.

“You’ve got a nonprofit combining with a for-profit, and how does that all work? Does the for-profit revenue and the profitability get counted against the overall Spectrum? I don’t know. That is for someone who has far more knowledge of this sort of thing than I do,” he said.

“I think there is an opportunity to improve health care as delivered by being patient focused rather than business focused. The goal should be higher quality for less cost. … Big systems, like we have here, have that opportunity because of their size. But it depends on how it’s focused. Focusing on patients is different than being focused on business units of Spectrum. I don’t know how they’re thinking.”

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