Analysis: Local purchasing alliance reduces hospital prices by 20%

In its coverage of the Peak Health Alliance, The Colorado Sun reports, the “alliance was able to get its local hospital to lower prices by 20%. Colorado officials hope it can become a model for communities across the state.

The Summit County effort, called the Peak Health Alliance, brings businesses and individuals together to collectively negotiate prices from hospitals and doctor groups before getting any insurance company involved.

So, this winter and spring, alliance leaders went to hospital systems across the region and asked a different question: What kind of deal will you give us?

Currently, the alliance is made up of several employers — local governments and vacation companies. But people who shop for health insurance on their own will also be able to be part of the alliance, bringing the total number of people covered through the alliance to around 6,000, in a county with about 30,000 full-time residents. That was a big enough number to get the attention of leaders at Centura Health’s St. Anthony Summit Medical Center, the county’s only hospital.”

Takeaway

First, I think we’re going to see an increase in activist employers and employer coalitions as more data on price variability becomes available.

I also think, in light of the evidence of price variability, we’re going to start seeing brokers negotiate more aggressively and ask for more innovative payment models as they are forced to respond to questions from clients about the value their services create.

Second, we haven’t seen it happen often, but even hospitals with a dominant market position have some degree of exposure if the area’s employers suddenly decide to cut them out. Even though St. Anthony Summit Medical Center was the only hospital in an area, where travel for large parts of the year can be challenging, the employer coalition was willing to look for a hospital partner elsewhere.

Third, the lesson for health system executives is: Make sure you have the leanest, most efficient cost structure possible.