Cities Unite To Negotiate Lower Health Care Costs


“Fed up with soaring costs, Dallas and 30 other North Texas municipalities are asking hospitals to submit bids indexed to federally controlled Medicare prices to cover the cost of care for city employees”

SOURCE: Bud Brooks, Brooks Healthcare Solutions ( )

Cities see strength in numbers in negotiating for better health care costs



Special Contributor

Published: 04 December 2015 09:08 AM

Updated: 06 December 2015 11:25 PM

Fed up with soaring costs, Dallas and 30 other North Texas municipalities are asking hospitals to submit bids indexed to federally controlled Medicare prices to cover the cost of care for city employees.

Molly Carroll, Dallas’ human resources director, said the city and its employees are spending $129 million on health care costs that are inflating at roughly 10 percent a year. Dallas wants “price concessions as well as some stability,” she said.

“This isn’t their business model,” Carroll said of the area’s hospitals. “Their model is, ‘Just give us your money and don’t worry about what it costs.’ We’re hoping they are interested in at least having a conversation with us about options.”

Gary Brock, president of the North Texas operations of Baylor Scott & White, said Baylor welcomed dialog but would not accept the municipalities’ request for bids.

He characterized Medicare-linked prices as one among several “short-term proposals that do not support the goals of population health initiatives proven to lower an employer’s cost for care while improving the quality of care for its employees and dependents.”

Other hospitals in the area have not yet responded to the coalition’s proposal.

The 31 municipal governments joined in the North Texas Coalition represent roughly 40,000 employees. The number doubles to about 80,000 when insured family members are included.

Together, they’re hoping that gives them enough clout to negotiate a better deal, beginning in 2017, than the insurance companies have been able to achieve on care delivered by the hospitals. Nationally, health care costs have risen between 3.4 and 5 percent a year since 2010. Medicare prices have actually fallen slightly during that time period.

Dallas-based Holmes Murphy, an insurance broker and consulting firm, has worked on the initiative for more than a year as part of a consulting contract with the city of Dallas. The city’s major employers were urged to demand Medicare-plus pricing from hospitals five years ago, but shied away from the idea.

Den Bishop, president of Holmes Murphy, said the approach aimed to give cities better transparency and lower inflation in their medical bills.

“We are not telling any hospital system that this is the most they can charge. It’s not Medicare plus x-percent, take it or leave it,” Bishop said. “We are just asking, at what percent of Medicare are you willing to sell your services? It gives the purchaser, the city, full indexed transparency on what the cost difference is between the hospitals, the same as they would get when buying police vehicles, telephone poles or asphalt.”

Since the Reagan administration, the federal government has used price controls to set hospital Medicare payments. Any provider willing to accept Medicare has to live with those reimbursements, even though hospitals have long complained that the payments don’t even cover their costs.

Indexing payments to a Medicare rate – Medicare plus 10 percent, 35 percent or whatever — would allow cities to compare prices among area hospitals. That’s something they haven’t been able to do.

“This is the only thing we purchase where we don’t know how much it costs,” said Brian Dickerson, Fort Worth’s human resources director. “Between 2008 and 2013, our medical spending went from $67 million to $100 million. If that happens again, we have to rethink how we do health care for our employees. Can we go out and spend the next $1 in taxpayer funds for health care or $1 for filling pot holes?”

Medicare is a federal insurance program for seniors and the disabled, and does not have a price for some medical care, such as childbirth. The North Texas Coalition is working with Milliman, another health consulting firm, to come up with prices for those procedures.

Hospitals have price lists, called “chargemasters,” but they bear little relationship to the deep discounts hospitals actually accept as payment for insured patients. Hospitals and insurers negotiate those discounts annually, but don’t disclose them to try to keep competitors in the dark.

As a result, patients and their employers typically don’t know the difference between the cost of care among area hospitals.

Holmes Murphy’s analysis of Medicare and other insurance claims shows hospital charges for a knee replacement, for example, range from $37,947 at Methodist Dallas Medical Center to $142,851 at Plaza Medical Center of Fort Worth.

“What we want is better care, better benefits and lower costs,” Dickerson said. With prices, he said, “we need predictability and sustainability.”

The governments of Dallas, Fort Worth, Plano and Grand Prairie comprise the executive board of the North Texas Coalition.

“We’re trying to save taxpayer dollars, and one of the ways we can do that in benefits is to be sure we are paying fair rates for health care services,” said Jim Parrish, deputy city manager of Plano. “We believe getting a good, solid basis to compare our health care providers’ costs is a first step in looking to do that.”