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Bending the Health Care Cost Curve

Bending the Health Care Cost Curve

The modest main offices of IUOE (Operating Engineers) Local 49 are in a two-story flat-roofed building in a light industrial neighborhood of Minneapolis.

Out in front of the building, a yellow bulldozer adorns a square of gravel—it’s the kind of decoration you’d expect from a bunch of heavy-equipment operators.

“We’re pretty typical, I’d say,” said health care coordinator Martha LaFave, describing the union local whose 12,000 members mostly operate big machinery like cranes, bulldozers and front-end loaders.

What’s not typical is that this local union has taken on health care costs, which are soaring nationally, by helping participating members get the right health care.

In 2004, the local’s leadership confronted a familiar dilemma: Either reduce increasingly expensive health care benefits or start taking money out of paychecks.

Jim Hansen, a Local 49 health care trustee at the time, didn’t like either option.

Local 49 has a health benefits trust, which is a type of self-funded insurance plan common among unions. As is usually the case, a third-party administrator processes and pays claims. The rising cost of those claims depleted the fund, which in turn pushed up employer contributions. All of that amounts to a fairly standard scenario.

What Hansen, who has since retired, and his fellow trustees did next was anything but standard. They began with a simple goal—identify high costs, help assure they were managed appropriately and improve outcomes.

“We didn’t really have a choice,” said Hansen, who began by learning as much as he could about why costs rose so fast. It didn’t take long to grasp the central problem—about 85 percent of the plan’s annual expenditures went toward care for 17 percent of the plan’s 33,000 beneficiaries (union members and dependents). That ratio is pretty close to the national average—which has 85 percent of dollars going to 15 percent of patients.

Hansen and other trustees at Local 49 dug deeper and learned of outside studies and data showing that medical errors and unnecessary tests boost health care costs substantially. Studies show that one-third of health care dollars are wasted on too much care, too little care and inappropriate care. They needed to get at the waste.

Addressing that problem was daunting. But then a small company that has tried to make a name for itself as a health care cost-cutter asked to take on a case study, a pilot case.

How Does Local 49 Stack Up?

The company was Health Systems Management. A patient who was a candidate for major surgery volunteered as a test case. Right away, the company found that the patient’s lead physician only had done this particular surgery a few times, and none of the doctor’s staff had experience doing the procedure, either. 

“No one around the table would have seen that procedure before,” LaFave explained—and those factors significantly raised the likelihood of what health care experts call “a poor outcome.”

With the patient’s blessing, the company searched for and found a veteran doctor at another hospital with an experienced team. The surgery went ahead as planned, with no complications. The company then established a follow-up system to track the patient’s post-surgery recovery.

All told, the test was a resounding success—the patient felt great, and that’s the right outcome.

So Local 49 business manager Glen Johnson decided to make a big investment. In 2005, the local hired LaFave for a newly created position: health care coordinator. Her job would be to oversee the local’s relationship with companies like Health Systems Management to make sure members received access to programs that provided accurate tests, correct diagnoses and the best possible care.

That became the way Local 49 looks at every health care question: How do we keep our members healthy and get the best bang for every buck we spend?

The local adopted a broad focus on prevention and quality. The fund pays for extensive annual health screenings—which take almost three hours —and for follow-up plans to help people actually absorb what they learned and catch potential problems early.

It hasn’t been easy. One big hurdle was earning the trust of Local 49’s membership.

“Everybody was apprehensive,” said LaFave. People worried that controlling costs would automatically mean curtailing care. That’s one reason why all of Local 49’s innovations are voluntary.

“We’ve tried every way we can” to increase participation, LaFave said. They’ve invited spouses to health care meetings and visited members where they live and work, and the local recently hired a communications director.

Every year, more of the plan’s participants undergo the health sceenings. Today, about 10 percent have taken advantage of the “value-based” health care programs.

Paying for health care value rather than just pushing up the volume of care is at the heart of national cost containment efforts as well. Medicare payment reforms already have begun changing the incentives that encourage expensive, wasteful and inefficient care, and Medicare will make even greater progress under the Affordable Care Act. The key is paying for care that really works. The promise of this approach has led the AFL-CIO to work with large health trusts and business health care organizations to compile a toolkit, available in spring 2012, for private purchasers that want to follow Medicare’s lead and the pioneering work of unions like Local 49.

LaFave said she hates talking about money, because health care “should be all about positive outcomes and healthy members.”

Local 49’s numbers are headed the right way. In 2010, when insurance costs nationally rose 10.7 percent, Local 49’s decreased 2.7 percent. Local 49 is bending the cost curve.

LaFave and Hansen have been spreading the word, talking to other unions about Local 49’s value-based program and its results.

“Our health care decisions have to be data-driven. What are we paying for? And what are we getting for it? That’s where health care needs to go,” LaFave said. 

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