Walmart’s Center of Excellence program is another innovation

Walmart’s sheer size makes almost any of their initiatives newsworthy. That said, despite being a lightning rod for criticism on employee benefits and health care, they have introduced initiatives with far-reaching impacts. Their generic drug program began in September 2006 – more than 300 prescription drugs for $4/month or $10 for a 90-day supply – and was widely emulated, disrupting retail drug markets and generating immense social benefit. Imagine the difference it made to a lower middle class diabetic who had been paying more than $120 per month for medications, and suddenly could get them for about $24.

Walmart recently announced that “enrolled associates” – covered workers and their family members – needing heart, spine or transplant surgeries could receive care with no out-of-pocket cost at 6 prominent health systems around the country: Mayo Clinics (Rochester, MN and Jacksonville, FL); Cleveland Clinic (Cleveland, OH); Geisinger Clinic (Danville, PA); Mercy Hospital Springfield (Springfield, MO); Scott & White Memorial Hospital (Temple, TX); and Virginia Mason Medical Center (Seattle, WA).

Walmart’s Center of Excellence (COE) program builds on its own and other organizations’ pioneering efforts with similar programs. Walmart developed a relationship with Mayo Clinics in 2007 for transplant and lung volume reduction surgeries. In March 2010, Lowes reached a similar arrangement with Cleveland Clinic for heart surgeries and, last December, Pepsico announced a global pricing deal with Johns Hopkins for cardiac and joint replacement surgeries.

It’s worth asking why these large firms would bother to do these deals for expensive care, and what this means for health care in the future. What’s different about the health systems that have been involved? Could these arrangements catch on and influence care elsewhere around the country?

The procedures involved are typically complex and high cost. Because they provide health coverage for more than a million people, Walmart has accumulated tremendous data and experience, and they are famous for their analytical acumen. They know that these kinds of treatments, though relatively infrequent, consume disproportionately high resources.

All of the organizations contracted in these arrangements have developed reputations for high quality. It’s worth noting that the unit pricing of their services can be high, but their episodic costs tend to be low. Their specialists are salaried, and therefore have no financial stake in ordering unnecessary services. And, in the words of a colleague knowledgeable about these efforts, “because they use evidence-based vs. money-driven care, they tend to get the diagnoses on complex cases right the first time. They also coordinate care and are more likely to be accountable than other systems.”

The press release also noted that Walmart’s COE program is “working with all the health care organizations to collectively share best practices that will allow collaboration around best measures of service and new industry findings in comparison to industry practices.” Think about that. Absent a health care environment that, as a practical matter, actively shares and translates evidence into practice, the purchaser, out of enlightened self-interest, has incorporated this process as a cornerstone element of its program.

One of my correspondents, a physician practicing at an academic medical center, commented on yesterday’s news:

“I recently reviewed … Texas hospital data. It is quite striking how Scott & White has markedly lower costs than most other equally sized Texas hospital systems while also hitting high marks for quality. I’d love, personally, to be able to take this press release to the head of our clinical practice and ask how we plan to compete in the future.”

He’s right. Health systems and specialty groups in the US have operated completely outside conventional market forces for decades, a fact that largely explains US health care’s egregious cost, highly variable quality and rock-bottom value relative to health care in other industrialized nations. As the market becomes more cost-weary and price-sensitive, purchasers will follow the leads set by Walmart, Lowes and Pepsico. They’ll align with organizations that can measurably demonstrate better care at lower cost.

As market forces take hold, success will be associated with driving appropriateness, and with accepting lower per patient revenues in exchange for more market share and greater patient volumes. Growth will come at the expense of entrenched, less agile competitors.

The big winners here will be patients, who will be subjected to significantly less unnecessary risk associated with overtreatment, and purchasers, who will receive far better value at lower cost.

Health care organizations should not underestimate the significance of Walmart’s COE program. It is one of many signs suggesting that, after 40 years of being impervious to market forces, the health care bubble could burst. All it would take to change health care as we have come to know it is for more employers to collaborate and follow Walmart’s, Lowes’ and Pepsico’s leads. They would stop doing business with health care organizations that are unaccountable and don’t provide measurable value, and transfer that business to those that do.

Brian Klepper is Chief Development Officer of WeCare TLC and blogs at Care and Cost.

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  • Darrell White

    “The big winners here will be patients, who will be subjected to significantly less unnecessary risk associated with overtreatment, and purchasers, who will receive far better value at lower cost.”

    Better value arises with either lower cost/same outcome, or better outcome/same cost. None of the institutions mentioned have lower cost; in the areas of care mentioned all have better outcomes, fewer complications, or both. These are examples of bringing more work to places where better work is done, rewarding them for better work, and thereby receiving “value” based on better outcomes with fewer necessary downstream, expensive “fixes”.

    We should strive for accuracy in our writing lest we provide less value to our readers.

    • KCF

      You know, the thing I despise most about this site is the frequency with which demeaning comments are left. Constructive criticism can be given and differing opinions can be expressed without taking jabs at others. This should be an environment where people can share ideas and learn from others. However, I see more disrespectful comments on here than I would like. The result for me is that i completely disregard the information given in the comment or I don’t trust its validity. For example, your last paragraph completely wiped away anything said before it. I am sure you have a lot of good information to share. If you do it in a more constructive way, maybe more people will get the message.

  • Marshall Ge

    Dr. Klepper,

    I enjoyed reading your post and as an undergraduate student intending to go into the healthcare field, it was interesting and informative to hear about the trends and problems in the hospital industry. I agree that thus far, market forces have not been able to touch hospitals and that this needs to change in order to both provide an impetus for improving surgical outcomes and stimulate a competitive lowering of costs. Rewarding high quality hospitals with bigger volume is probably the best first step we can take toward installing market forces, and I agree that the volume of patients that Walmart can provide is a great first step, but we can’t stop there. With Walmart, we have its 1.4 million employees participating in driving hospitals to compete for its volume, but what about the non-Walmart employees. I believe that a large part of why hospitals have been impervious to market forces is due to the low density of hospitals geographically. Distance and discomfort in a new city are barriers to the average person who wants to fly to a high quality hospital to treat a particular condition. If we want to profoundly instill competition into the hospital industry, we need to confront the barriers to access for the rest
    of the nation’s citizens.

    While the Center of Excellence program is a great step in the right direction and its feasibility is probably backed by years of data collection, I still want to see how this program will adjust to changing circumstance as it ages. Given that the healthcare field is constantly changing, it is hard to predict the long term value that this innovative program brings to the assimilation of market forces into the industry. As I mentioned earlier, how will we combat the geographical barriers including the time lost to travel, fatigue, and discomfort that comes with traveling to a new region while sick? I understand that in the Walmart plan, the patient and a relative’s travel expenses are covered, but what about the other responsibilities that a traveling sick employee might have that they will have to anxiously neglect while recovering in a facility hundreds of miles away from home? The convenience of having a hospital near home is often overlooked and I think will be an issue as Walmart implements this program. In the end, the primary goal of instilling competition is to push hospitals to improve their patient outcomes, something I believe will happen, and anything else is just a bonus.

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