Thursday, December 15, 2011

Baltimore time is Pepsi time

Andrea Walker from the Baltimore Sun reports:

PepsiCo has signed a deal that allows employees and dependents across the nation to get certain surgeries at Johns Hopkins Hospital — a cutting-edge arrangement that could grow in popularity as companies look to provide better health care and contain costs.

The world's second-largest soda company will pay for workers and their dependents — about 250,000 people — to travel to Baltimore for cardiac or complex joint surgeries, such as correcting problems in a previous knee replacement. PepsiCo will also cover the deductible and coinsurance for the procedures.

It's a free country, so PepsiCo can do as they like, but I wonder what the basis is for choosing Hopkins instead of another hospital.  Is it that it can demonstrate superior outcomes compared to other hospitals around the country?  No it cannot, but there are no published figures that would enable that kind of comparison.

So, the answer has to be that PepsiCo negotiated a really good price for these services:

Hopkins in turn will charge Pepsi a set rate for the surgery, rather than separate fees for physician charges, preoperative testing and other related services. The arrangement was announced last week.

As this is mainly incremental business for Hopkins, I am willing to bet that the price offered is substantially below that charged to local residents going to the hospital, whether covered by Medicare or private insurers.  In a large, fixed-cost institution like Hopkins, as long as you don't have to add new physical facilities and expensive equipment, you can price just high enough to cover your short-term marginal costs and come out ahead.

But I wonder if PepsiCo considered other institutions or conducted a taste test?  That would have provided a real challenge.


Anonymous said...

Considering that the U. of Maryland Medical Center, one of Leapfrog's 65 best hospitals, is right in the same town; one must really ask what criteria Pepsi DID use for its decision.
Caveat of course; Leapfrog participation is voluntary, and who knows whether their quality measurements correlate to outcomes. But perhaps that's another point as Paul mentions - there are no easily accessible, meaningful data for Pepsi to use in making this comparison. That alone is a big problem.


Tom Emerick said...

In my book it is hard to find university-based health centers that should be chosen for this kind of program.

However, kudos to Pepsi for their effort. True reform will only happen when more and more private self-insured employers do what Pepsi did. Many employers are doing the same thing now but doing it very quietly.

Employers can detect high rates of excessive testing and inappropriate surgery by examining claim data. Leapfrog data helps show which hospitals have lowest infection rates, etc. Employers are using those kinds of data to choose where to send patients and where to move them from.

Anonymous said...

Similar to the Lowe's/Cleveland Clinic deal: