People who live and work 9,000 feet above sea level in Colorado’s ski-resort towns have long paid more for health care than almost anyone in the U.S. For years, local leaders from Summit County, home to the slopes of Breckenridge, decamped to Denver to plead for relief.
The annual journey to the capital became a discouraging pilgrimage for Tamara Drangstveit. As executive director of a nonprofit that helped people sign up for health coverage, she watched premiums gobble up more of household budgets every year. From 2015 to 2019, the cost of a midlevel health plan for a single 40-year-old in Summit County more than doubled to $606 a month, 34% above the national average.
The high prices are common in parts of the U.S. that are served by just one hospital, a situation that prompts some residents to drive more than an hour in search of cheaper care, even for simple procedures.
The people of Summit County, working with a forward-thinking state insurance commissioner, figured out a way to change all that. Colorado Governor Jared Polis announced plans on Thursday to replicate it statewide. What they did to bring prices down could be a model for reining in spiraling costs across the U.S., a goal that has proven elusive in Washington.
It wasn’t easy, or fast. Drangstveit, 42, recalls past insurance commissioners fleeing when she approached to talk about costs. “They would literally turn around and walk the other way,” she said.
That changed in January 2018. Drangstveit appeared on a “Pizza and Politics” panel discussing health costs at a community center in Frisco, a town of about 3,000 between the mountains and the Dillon Reservoir, which supplies much of Denver’s water. Next to her sat Michael Conway, 39, freshly appointed as Colorado’s interim insurance commissioner by the state’s Democratic governor.
“The room was angry,” Drangstveit said. A new year had brought another round of premium hikes.
After the event, Conway didn’t walk away. “He let us beat up on him some more,” Drangstveit said, “and then he gave us his cell phone and said text or call me any time and I will come back with a strategy for you.”
The discussions that followed led to an initiative set to reduce premiums by as much as 20% next year in Summit County, according to the Peak Health Alliance. That’s the name of a newly formed group of employers who have banded together to negotiate directly with the local hospital and insurance companies.
Peak Health will represent about a fifth of Summit County’s 31,000 year-round residents. It will include workers from large government and private employers, small businesses, and individuals, creating the bargaining power to drive down health-care prices.
“We can be successful where maybe insurance companies have struggled,” said Drangstveit, who will lead Peak Health as executive director.
The U.S. spends more on medical care than other countries mostly because prices are higher, not because Americans use more services or because care is superior, according to economists who study health spending. Further, employers often don’t have a good sense of what their health plans pay for services and how that compares with the market.
That secrecy creates disparities. A recent Rand Corp. study found average prices paid by commercial health plans to hospitals vary from 150% to 400% of the rates paid by Medicare, the government health insurance for older Americans.
Rand analyzed data from 1,600 hospitals in 25 states and found big differences in prices negotiated by health plans. For outpatient CT and MRI scans, prices varied from slightly under what Medicare pays to 15 times Medicare rates—ranging from $72 to $1,111.
In Colorado, Summit County’s lone hospital stands out. At St. Anthony Summit County Medical Center, they paid $876 on average for the scans—11 times what the hospital would have gotten from Medicare.
“If you’re an employer, you know exactly how much you’re paying for computers or pencils or widgets or whatever,” said Chris Whaley, a health economist who wrote the Rand study with Chapin White. “But for one of your biggest expenses you’re just totally in the dark.”
Insurers negotiate prices on behalf of their clients but they don’t always have the incentive to get the best deal, Whaley said. “They’re negotiating with somebody else’s money,” he said.
The Trump administration may require the prices hospitals and insurers negotiate to be made public. In April, Health and Human Services Secretary Alex Azar told employers opaque prices and a lack of competition “leave patients at the mercy of a system they don’t understand or control.”
“Health insurance providers’ main goal is to save patients and taxpayers the most money possible,” said Cathryn Donaldson, a spokeswoman for America’s Health Insurance Plans, the industry’s trade group.
In Summit County, big employers like the Breckenridge Grand Vacations resort, the school district and local governments have one hospital to negotiate with. St. Anthony Summit Medical Center in Frisco, with $270 million in annual patient revenue from its 35-bed medical center and affiliated clinics, is part of the Catholic nonprofit Centura Health chain.
In 2018, the group behind Peak Health hired actuaries to examine their medical claims. Like the Rand researchers, they found that employers paid higher prices in Summit County than Denver, where there are more hospitals, for the same services. Many residents were driving 75 miles to the state capital to get lower-cost care or procedures not available closer to home.
Some rates were especially high compared with Medicare, such as for emergency visits. Commercial insurance in Summit paid eight times the Medicare rate when people went to the emergency department at St. Anthony Summit.
When Drangstveit and others saw the disparities, they weren’t sure what to do. But Conway, the insurance commissioner, saw a fragmented market where buyers have little power to influence prices.
“Our market is far more segmented than any other health-insurance marketplace in the world,” he said in an interview.
Conway helped the group find a way to increase its leverage. A Colorado law from the 1990s allows employers to form cooperatives to negotiate health-care prices. Conway believed that municipal governments and businesses could join together and get better rates. If small businesses and individuals could also join, they too would benefit.
“I wanted to try to find a way to use market forces to really actually start to control health care costs, and Summit County was the perfect place to do that,” Conway said. “I was using them just as much as they were using me.”
Peak Health calculated that it would likely represent the buying power of about 6,000 people. Over the first three months of 2019, the group negotiated with St. Anthony Summit executives. Drangstveit said the hospital was willing to bring down prices partly because people were leaving the county to get care. Almost two-thirds of the medical costs incurred by residents were at providers outside the county.
“I’m not going to defend our prices,” said Lee Boyles, who joined St. Anthony Summit as chief executive officer in November. “When you have people leaving, especially local residents leaving your market for care, that definitely raised my eyebrows.”
Boyles said the hospital has big seasonal fluctuations in demand and offers more intensive services to treat traumas like ski injuries. The hospital did lower prices significantly in negotiations with Peak Health, he said.
Cutting a deal with the hospital was the first step. While Peak Health works as a group to negotiate, it isn’t an insurance company. Each large employer runs its own plan, hiring insurers to administer claims.
For the small group and individual markets, Peak Health asked insurers to bid to provide the lowest premiums at the reimbursement rates it negotiated with the hospital. UnitedHealth Group Inc. subsidiary Rocky Mountain Health Plans won for the small group market, while Bright Health will run the individual plan.
Jon Watson, president of Bright Health’s individual and family plan business, said buying groups like Peak Health could bring down rates in rural areas with little hospital competition. He was more skeptical of how it would work in cities where hospital systems compete.
“Having that work in Denver may be more challenging,” he said. “There isn’t 20% to cut out of the fat.”
While preliminary rates for 2020 are expected to be published in July, Peak Health projects that premiums in the individual market will be 20% lower than this year. Conway, the insurance commissioner, wants to expand the idea. He says the state employee health plan could anchor a larger buying group. Colorado is including language in future contracts to allow its employee plan to join a purchasing group like Peak Health.
“My gut sense is that it’s promising but potentially unproven,” said Michele Lueck, CEO of the nonprofit Colorado Health Institute, a state health-policy group. “To see if it actually works in reality is probably a whole other deal.”
Drangstveit said there’s more to be done. Peak Health sprinted to finish talks with St. Anthony Summit in time to file health plans for 2020. For the next year, Drangstveit wants to see whether the group’s buying power can help bring down drug costs.
Drangstveit avoids blaming hospitals or insurers. The prices in Summit County, she said, resulted from health-care companies doing “what they can legally do to make the system work for them,” she said. “Some of what’s happened in this system has happened because we’ve let it happen.”
This article was originally published on Colorado’s Ski Towns Could Fix the High Cost of American Health Care