Health care coalitions: medicine for the bottom line.

• Author: Gray, Carol Lippert

Since the cost of keeping employees in the pink is making some employers see red, they might want to take two aspirin and consider joining a health care coalition in the morning.

Employee health care isn't just a human resource issue any more. The cost and delivery of health care benefits have a direct impact on employee recruitment and retention, managing an aging workforce and increasing productivity - and therefore on the bottom line.

Cost is, perhaps, the dominant factor. Total spending on employer-sponsored health plans rose 6.1 percent in 1998, ending five years of nearly fiat cost growth, according to a survey from William M. Mercer, Inc. The survey says employers predict their expenses will rise even faster this year; nearly three-fourths anticipate increases averaging 9 percent.

In an effort to keep a lid on costs - and maybe even drive them down - some employers have formed or joined benefits purchasing consortiums, or health care coalitions. The concept is simple. Coalitions - sometimes called alliances or cooperatives - are formed by multi-employer, public and single-employer health funds that want to maximize their purchasing clout to obtain the best possible health benefits at the lowest possible cost. Hospitals, insurers and other health care providers offer discounts to large purchasers in exchange for the volume of covered lives they can deliver as patients. Thus, a coalition of multiple funds can buy the same services at lower cost than individual funds can.

Holding the Purse Strings

As 22 percent of U.S. consumers report dissatisfaction with their managed care plans, up from 17 percent in 1997, according to a Hewitt Associates survey, this new prescription has a beneficial side effect: Coalitions can leverage improvements in the quality of care their enrollees receive. In fact, according to Dr. Arnie Milstein, chief physician at William M. Mercer and medical director of the Pacific Business Group on Health, "Since quality is extremely poorly managed in American health care, if you can be successful in developing market clout, there's an opportunity to reduce costs by 30 percent while improving quality."

Milstein says the San Francisco-based Pacific Business Group, which now has 3 million covered lives, is the Adam and Eve of coalitions. "It was the first," he notes. "Over a two-year period, we reduced premiums collectively by about 13 percent, generating an eight-figure collective saving. Over the subsequent two years, we...