Can a Coalition of Local Cities Bring Price Transparency and Consistency to Healthcare?

Estimates say around $40 billion every year is spent on healthcare in Dallas-Fort Worth, and as prices continue to increase, all entities are looking for ways to bring down costs. A coalition of 30 cities and the greater DFW area came together in 2015 to form the North Texas Coalition to bring more transparency, sustainability, and predictability to the healthcare market.

The coalition hopes to use strength in numbers to get bids directly from regional hospital systems for healthcare services. Some members of the coalition have seen dividends from this strategy. Fort Worth saved $19 million in healthcare spending in 2018 through directly contracting with health providers, resulting in a seven percent reduction in inpatient costs per member per month in 2018 compared to 2017 and a 19 percent reduction in high cost claimants.

According to data from the American Hospital Association, private payers pay 63 percent more than Medicare and Medicaid for the exact same hospital services. The coalition, with the help of consultants at Holmes Murphy, developed the Fair, Indexed, Relevant, Simple, Transparent price tool to allow a hospital system to determine its prices for services as a percentage of Medicare rates, also called reference pricing.

“We are really looking at a way to shake up the market in the DFW area,” says Holmes Murphy president Den Bishop. “Cities cant raise prices, or taxes, and benefits are a big part of compensation puzzle. They struggle with increases in cost.”

The thought is that buy banding together, municipalities like Dallas, Grand Prairie, Mesquite and Plano with thousands of local employees can use their numbers to get a consistent, reasonable, and transparent rate from hospital systems. In addition, saving healthcare costs for these taxpayer-funded municipalities is saving everyone’s money.

Holmes Murphy chief operating officer of employee benefits Dave Shipley notes that municipalities work differently than corporations. “Cities are unique and share information, not like corporations. They will lock arms and tackle this problem.”

In most cases, cities ask a lot of questions about where taxpayer money is being spent (though not always). But in the healthcare realm, cities often don’t know much about the prices of the healthcare they are purchasing. “The city has no line of sight as to what they are actually paying for those services,” says Bishop.

In addition to the lack of transparency, prices can vary widely between health systems and areas, which doesn’t happen in other areas where cities send their money. According to research from Holmes Murphy, prices for a knee replacement surgery ranged from 250 percent of Medicare rates at Methodist Hospital for Surgery to more than over 1300 percent of Medicare rates at the Medical Center of Arlington. That is a price range from about $35,000 to around $220,000.

Cities put out a request for proposal like they would for other services, and health providers have the ability to respond with more transparent pricing of healthcare services. For the City of Dallas, the process didn’t go exactly as smoothly as expected. Bishop says that both UT Southwestern and Texas Health Resources put out letters saying they would not bid for the RFP, with similar language describing how the plan did not fit their strategic goals. Bishop says the coordination bordered on collusive activity.

“The coalition got this on the table to a more an open dialogue,” says Bishop, who noted the eventual impact when Baylor Scott and White and Methodist entered the picture. “The end result was savings. They got much more competitive.”

In North Texas, the coalition is not trying to set prices at Medicare levels, which might be too disruptive. “We believe we need indexing, but don’t think that medicare pricing for all is in our best interest,” says Bishop.”The seismic shift would be too damaging to the healthcare system. Instead of blowing it up until it pops, transparent indexing could let some air out of the balloon.”

This January, municipalities sent out RFPs for services, which will attempt to make hospital and pharmacy services more transparent. Each city must make the request individually, but language in the RFP encourages providers to give similar rates to neighboring cities. The job also entails convincing city councils and city managers on how this could benefit their city. “We need to be in agreement that it can’t be sustained,” says Shipley. “So they don’t do the good old boy thing because they live in the same neighborhood.”

Other states such as North Carolina and Montana are using reference-based pricing and saving money. Montana said they would only pay an average of 234 percent of Medicare rates across the state, eliminating price variance at different providers. It saved over $15 million last year through this process. Critics say there could be issues if the hospitals decide to not accept the rates, and that the rate may be set too high, locking states into overpaying.

The coalition has to balance the tension between trying to bring down hospital prices while those same hospitals are often economic generators for their city, employing thousands of people with significant influence. “We are not trying to put people out of business,” Bishop says. “We want city managers and mayors and city councils to be able to tell voters that they know where these dollars are going.”