Savannah strategy: Skip the middleman, cut deals with providers

Print Friendly and PDF By: Andy Miller Published: Aug 20, 2012
Savannah-based Lummus Corp. makes cotton ginning equipment such as the machinery pictured above.

Savannah-based Lummus Corp. makes cotton ginning equipment such as the machinery pictured above.

Four years ago, Lummus Corp. decided to do something very different on health care.

The Savannah-based company, which makes cotton ginning equipment, had dealt with grinding increases in health costs every year, with premiums under regular insurance plans jumping 17 percent to 34 percent annually.

But in 2008, the privately held Lummus became a member of the Savannah Business Group and began self-insuring its own benefits –- and buying health care together with other employers in that coalition.

The Savannah Business Group contracts directly with hospitals and doctors, bypassing the typical set-up with health insurers.

The payoff for Lummus has been startling.

With 148 employees, Lummus has seen its health costs flatten out in the past four years –- rising no more than 5 percent a year. In addition, says Sharon Herrera, Lummus’ human resources director, the company has improved employee benefits. Copays for medications have been lowered and  wellness benefits have been added, along with other benefit enhancements for workers.

“We believe we’ve improved the health of our employee population,’’ Herrera says.

The Savannah Business Group has been a major player in coastal Georgia since the 1980s, helping self-insured employers buy health care at a more affordable price.

SBG has 28 employers, with workforces ranging from 50 to 6,000, as members. Eighteen of these employers — including the City of Savannah itself — directly purchase health care together, using the coalition’s preferred provider network.

The key to success of this effort, say the coalition members, is that the employer group negotiates directly with hospitals and doctors, using a ‘‘third-party administrator’’ but forgoing the traditional health insurance route. Each employer member still designs its own benefits plan.

It’s the only employer coalition of its kind in Georgia.

 

A model for exchanges 

Huge corporations have it easier buying insurance than smaller companies, says Gary Rost, executive director of the Business Group. “Very large employers can usually ask for something and get it from an insurer,’’ he says.

But the coalition’s members can function together with as much power as a large corporation. “Our ability to work directly with doctors and hospitals in a community is very valuable,’’ Rost says.

Many employer coalitions have formed for health care purposes around the country. But the National Business Coalition on Health, which has 56 employer groupings around the nation, says only about a dozen of them have a health care purchasing function like Savannah’s.

“It’s not an easy model to put together,’’ says Andrew Webber, CEO of the National Business Coalition. The coalitions face competition from insurers and must deal with the complexity of negotiating contracts, he adds. “In a way, it’s a mini-insurance company,’’ Webber says.

Employers working together to raise their buying clout is something that the health reform law of 2010 envisions doing through insurance exchanges, with small business banding together to purchase coverage based on price and quality.

That combination is behind the hot new concept in health care, “Value-based purchasing.’’ That’s the payment model wherein quality of services, and not quantity, is rewarded.

SBG’s Rost says quality of care is one of four areas the group judges in its request-for-proposals process.

The coalition reviews patient outcomes from the Centers for Medicare and Medicaid Services and measures reported by Leapfrog, which monitors safety and quality of hospitals. It pays attention to hospital infection rates and patient readmissions.

“Savannah’s hospitals are some of the best in the nation and are in top 10 list for Georgia,’’ Rost says.

Dr. Jules Toraya, a Savannah ob/gyn whose practice is part of the SouthCoast Medical Group, said that for him as a physician, the SBG arrangement is easier than dealing with an insurance company, and pays similar to a commercial insurer for medical services. (SouthCoast is also an SBG employer member.)

 

Questions of judgment

But the negotiating process isn’t always without controversy.

Recently, the Savannah Business Group recommended renewing its contract with St. Joseph’s/Candler system, and the Savannah City Council ratified the decision.

Rost says St. Joseph’s/Candler’s rates were 11.5 percent lower than than those of its rival, Memorial Health.

“Both had great rates,’’ Rost says. “St. Joseph’s had the better pricing structure.’’

But Memorial’s president and CEO, Maggie Gill, publicly challenged that assessment, according to a Savannah Morning News article.

“After we agreed to reduce our rates even further, that [price] spread no longer exists,” she said in the article. “What I don’t understand is how, in this era of transparency and openness, can you blindly trust a third party [SBG] to evaluate your rate?”

Gill also stressed that Memorial offers specialized care, including neonatal care, specialized eye surgery and other services not offered at St. Joseph’s/Candler.

Coalition members interviewed by GHN say the cost of coverage remains a huge priority.

David Deason, human resources director for Colonial Group Inc., an oil and gas distribution company with 300 local employees, says his firm’s health increases have been in the range of 6 percent to 10 percent annually.

“You can’t sit on the sidelines,’’ Deason says. “This is your money. You have to roll up your sleeves and do the work. This is the only way to go.’’

Herrera of Lummus says, “Most of the people who came to work here have not had health insurance, or have lost it.’’

Insuring them helps taxpayers avoid the costs of care for the uninsured, she says.

SBG members ‘‘have a passion for what we’re doing,’’ Herrera says.

The Savannah Business Group, she adds, “has been extraordinary in helping us achieve this.’’

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