While I’ve often been skeptical of the ability of individual consumers to shop for high-quality care, I’m less pessimistic about the ability of large groups to do the same. Part of the problem I have with the former is that many high-cost intensive procedures are so rare and serious that when they do occur on an individual level, patients simply can’t be counted upon to be rational consumers or differentiate between high and low quality and cost.

Nor can they really prepare for such decisions. After all, very few of us will need a heart transplant or a bypass this year. We’re not going to take the time to figure out what we might do if we need one, or try to make deals for lower prices at high-quality facilities on the off chance that we do.

But that doesn’t mean that large employers can’t do that. A very large employer will likely have a number of employees who will need such procedures each year. They may be able to contract with facilities to offer them higher volumes in exchange for lower prices.

Wal-mart is doing just that:

Wal-Mart next year will cover cardiac and spinal surgeries for more than one million U.S. employees and dependents through bundled payment agreements with six hospitals, including Cleveland Clinic and Mayo Clinic.

Beginning in January 2013, about 1.1 million employees and dependents enrolled in the company's health plan will get access to consultations and care for certain cardiac and spine procedures at no additional cost to them. Wal-Mart will also cover the cost of travel, lodging, and food for the patient and one caregiver.

The company on Thursday announced the selection of six "Centers of Excellence" for the program:

  • Cleveland Clinic;
  • Geisinger Medical Center in Danville, Pa.;
  • Mayo Clinic sites in Arizona, Florida, and Minnesota;
  • Mercy Hospital Springfield in Springfield, Mo.;
  • Scott & White Memorial Hospital in Temple, Texas; and
  • Virginia Mason Medical Center in Seattle.
The arrangement expands the company's partnership with Mayo Clinic for transplant surgeries that launched in 1996 and will make Wal-Mart the first retailer to offer a national program that covers heart, spine, and transplant procedures.

With over one million employees, even rare procedures are going to be needed each year. Some of these providers in this article exist in markets that aren’t growing (ie Cleveland). So, by using their large purchasing power, Wal-mart can negotiate with providers for pre-approved lower bundled prices for care for certain issue. Wal-mart gets to save money, the Cleveland Clinic gets more business, and patients get higher quality care.

Of course, there are downsides to this. Patients may have to travel to get to Cleveland, and that is unpleasant for some. Additionally, some may really want to use their usual providers. After all, continuity of care matters to people, and this is a reduction of "choice".

These types of contracts may employ carrots or sticks to try and get patients to use contracted facilities. In this case, the carrot is that patients who agree to have procedures at one of these centers-of-excellence will have no out-of-pocket costs. Alternatively, Wal-mart could have chosen to increase costs for patients who elected to receive care at other facilities.

Wal-mart is not alone in this endeavor:

Lowe’s is a national chain of 1,750 home improvement centers with 200,000 employees, dependents, and retirees covered under its health benefits program. Approximately 17,000 covered beneficiaries have chosen health maintenance organization coverage, but most are covered by Lowe’s self-insured preferred provider organization plan. Lowe’s was concerned about the wide variation in prices, complications, and readmissions for similar procedures across the numerous hospitals where its beneficiaries sought care. In April 2010 the firm launched a centers-of-excellence program for nonemergency cardiac procedures, including angioplasty, bypass surgery, and valve replacement.

Lowe’s decided to select a single provider organization for its national centers of excellence for cardiac procedures. After an extensive analysis of major systems, the firm developed a contractual relationship with the Cleveland Clinic. The Cleveland Clinic has a strong reputation for quality but is in a regional market that is not growing. Hence, it was willing to offer attractive prices to obtain patients from out of the area. Lowe’s initially considered international medical travel but decided that its employees would be more comfortable with a well-recognized domestic provider.

The Lowe’s centers-of-excellence benefit is offered to beneficiaries as a supplemental benefit and is not mandatory.

Many of the centers being discussed so far are hard to demonize. They provide high quality care, and few patients would object to going to them. Therefore, these types of contracts have received little push-back so far. After all, if you can get higher quality care for less money out of pocket, why would you object?

Problems in the future may arise when a facility offering less-than-stellar quality offers a bargain-basement price to a large employer. Might they be tempted to try and nudge their employees towards care that costs less even when it might result in slightly worse outcomes?

At the moment, these deals seem like a win/win for most people, although some will still grate against any policies that result in a reduction of choice. How they continue to be used in the future will be up for debate and much scrutiny.

–Aaron Carroll

Dr. Aaron E. Carroll is an associate professor and vice chair of health policy and outcomes research in the department of pediatrics at the Indiana University School of Medicine. He blogs about health policy at The Incidental Economist and tweets at @aaronecarroll