1992 Innovation Optimas Award ProfileBRCampbell Soup Co
Although this down-home image of a country doctor might have made a nice opening scene for an episode of "The Waltons," the fact of modern health care is that medicine isn't what it used to be in rural America, and neither are the costs of health care benefits for large employers in small towns.
Rural American health care is a challenge that Camden, New Jersey- based Campbell Soup Co. (having many operations in suburban cities) has successfully managed during the past four years. By establishing an unusual managed health care network specifically targeting five of its small-town U.S. operations, Campbell has realized a bonanza of medical savings while maintaining one of the highest levels of employee health care benefit plans in America.
For its pioneering efforts in developing and sustaining a primary health care network system in the face of steeply increasing health care costs, Campbell Soup Co. is the winner of PERSONNEL JOURNAL's 1992 Optimas Award for displaying excellence in human resources management through innovation.
Curing the rural health care crisis takes more than a good helping of chicken soup.
"In 1985, we started to realize that our medical costs in some rural communities were higher than in some of the urban areas—and we didn't know why," recalls John J. Hague, Campbell's corporate benefits director. "Although our medical costs weren't completely out of sight, they clearly were rising at an alarming rate. What surprised us was that the costs weren't high where we expected them to be high," says Hague.
For example, Campbell's health care costs in its Paris, Texas, and Omaha, Nebraska, divisions greatly exceeded the medical costs per employee in the larger cities, such as Philadelphia. This was a surprising development for a company keeping a watchful eye on the benefits costs.
Campbell's HR managers knew they needed to apply some old-fashioned ingenuity to solve the problem of rising health care costs in its rural operations. Hague set out to learn why the problem existed and to determine what to do about it for the long term. "When we started to look at those costs," explains Hague, "what we discovered was outmigration." Rural employees were leaving their own communities to seek health care in the big cities. "It was like The Grapes of Wrath," he says. "People tended to go to major cities for their hospital care. Instead of going to a hospital in Paris, Texas, they were going to big cities, such as Dallas."
While looking for answers, Hague also discovered a fledgling health care management and consulting firm that had just begun to help employers deal with the issue of outmigration. Little Rock, Arkansas-based Burgett & Dietrich, Inc., started in 1985 by Orlo "Spike" Dietrich, had an interesting suggestion for large employers that have small-town operations: Set up health care networks in rural communities between physicians, other employers (wherever possible) and employees, in which physicians promise to case-manage each patient's care, and employees promise not to self-refer.
"Managed care is a buzzword these days," says Orlo Dietrich, president of Burgett & Dietrich. "Back in 1985, we still were trying to explain to people what managed health care was." Not only did Campbell's HR managers understand, says Dietrich, but they were also ready and willing to get a plan started and wanted a state-of-the-art model on which to base an effective program.
Basically, the idea was to set up a managed care program that would be run by Campbell, instead of being controlled by an insurance company or a health maintenance organization (HMO), which usually isn't available in smaller towns. This plan not only would give Campbell (which is self-insured) a direct say in how its health care dollars are spent, but it also would provide a monthly open forum in which community employers and health care providers could discuss such topics as medical trends, frequency of diagnoses, per- diem costs at hospitals, average lengths of stay, referral patterns and costs-per-visit (based on regional and national norms).
By 1987, Campbell's benefits and personnel departments had committed to bringing the program in-house and were training local personnel and operations managers about how to manage it. A year later, the plan was introduced to employees in Campbell's Paris, Texas, and Maxton, North Carolina, facilities. Since then, three more divisions—Napoleon, Ohio; Willard, Ohio; and Douglas, Georgia (a total of 2,361 employees)—have been added to the plan.
The program is innovative in two distinct ways:
- Employees agree not to self-refer. Each non-salaried worker may sign up for one year at a time and chooses a primary-care physician from a participating panel. Whenever necessary, each family member can choose a different physician. In return, Campbell pays 100% of the employee's (and their dependents') primary care when they see their primary-care network (PCN) family practitioner, pediatrician or internist. Campbell also pays 100% for an enrollee's first referred visit to a specialist, and there are no co-payments or deductibles.
- Physicians agree to case-manage each patient's care and must participate (directly or through a representative) in monthly plan board meetings conducted in the community. The plan board develops cost-containment strategies on how to work with area hospitals and other health care providers based on data provided by the consulting company.
If a network doctor refers a patient to a specialist, he or she must send specific written referral instructions along with the patient. The referral lets the specialist know what the primary doctor suspects the final diagnosis will be, which tests (such as X-rays or lab work) have been done and exactly how many visits the specialist is authorized to have with the patient. If the specialist determines that further care is needed, he or she first must check with the primary-care physician for approval before proceeding with care.
Without specific guidelines, it's amazing how often care is repeated, says Hague. "I think where you see (these medical practices) impacting cost is when employees get referred from a doctor to a specialist and so on. A lot of test work gets repeated. That's a very expensive way to practice medicine." Burgett & Dietrich statistics show that primary-care physicians' costs account for less than 15% of the total cost of patient care and 85% is related to specialist and hospital costs.
Through close supervision by the primary-care physicians, good health care is received without a duplication of procedures. Individual doctors aren't told how to practice medicine, but they are given guidelines on how to operate within the system. "It's another level of collaboration," says Hague. "We're just trying to make sure that it happens on a structured basis."
Employees automatically are re-enrolled if they don't opt out at the end of the plan year. If while in the network an enrollee decides to go to a specialist without the consent of his or her primary care physician, the worker automatically is transferred out of the network and is covered under the regular medical plan—an indemnity plan that has a deductible and co-payment requirement.
Typically, under the indemnity plan, employees are responsible for 20% of the cost and Campbell pays 80%. Under the network plan, employees pay nothing. "That's the incentive to go into the network," says Hague. Either way, employees always are covered.
"What makes this approach so innovative is that it's relatively straightforward and simple for the employee to understand," says Hague. "If an employee makes a bad decision and wants to get out of the program, he or she can go back to the regular program very easily, and there aren't any financial penalties."
From the management perspective, the plan helps Campbell realize cost savings without jeopardizing health care. Although calculating the savings is more an art than an exact science, Campbell figures it saves approximately 10% to 20% on the health care costs of those employees who are in the network. Although most companies experience health care cost increases hovering in the 18% to 27% range, says Dietrich, most companies using this program are seeing only a 9% increase in overall costs, including catastrophic illness claims.
"Savings in the medical cost containment field are elusive," says Hague. "As long as costs go up, what you're saving is what you might have spent." And as they say, a corporate dollar saved is a corporate dollar earned. Although the goal isn't just to save money, keeping costs under control allows Campbell to continue to provide health benefits without asking employees to share in the costs.
The program, however, takes more management commitment at the local level than other health care plans, says Hague. "This is more of a hands-on program," he explains. "It requires people in the local community—plant management and local HR managers to get involved," says Hague.
An equal number of local Campbell personnel and facilities managers each month team up with other local employer representatives in addition to area physicians to discuss pertinent health care data. Typically, five individuals representing each group will convene to track both the financial performance of the program and individual physician performance.
With raw data claims information from the various claim payers (supplied by the consultant), the plan board "peels back the onion skin to analyze costs down to a patient-specific, physician- specific, diagnosis- and procedure-specific basis," says Dietrich.
"This truly is a combination of persistence, risk taking and innovation," says Stephen Armstrong, Campbell's vice president and VP of human resources. When trying to control the costs of health care, "you can look at the totality or the individual pieces, but at some point, you've got to look at both."
This whole process creates heightened awareness of medical costs for all concerned. Hague tells of a recent meeting with the personnel manager of the Willard, Ohio plant who was interested in making a medical plan change. When Hague asked him if he would have thought of the idea three or four years ago, his answer was a definite no. "He knows so much more now about how our medical plan operates," explains Hague. "What it really does is it makes people, and this includes physicians, very, very aware of how medicine is being practiced in their community."
Says Dietrich: "Most people think that medical delivery systems and health care are a black hole that no one can get involved with and understand. It just isn't true."
"I think we're much better informed than we had been about where our health care dollars are going," says Hague. "If there's anything we've learned from this, it's that every solution isn't the same—that some solutions are different for different communities."
Zeroing in on the real problem with most health care delivery systems.
"The problem of escalating health care costs has very little to do with the price of medicine and has almost everything to do with the proper utilization of the system," says Dietrich. Physician and hospital charges aren't the issue, he continues: "What the issue really is, is the number and kinds of services that are delivered. What employers must understand is, the only people who can control utilization for us are our physicians. The patient-initiated decisions are relatively inexpensive. All of the expensive decisions in medicine are physician-driven: Should this surgery be performed? Should this test be done? Should this referral be given?"
"We take the approach that there is no quick fix. We don't focus on beating up physicians or hospitals on price—because many physicians and hospitals already are charging a fair price," explains Dietrich. "We focus in on making sure that the medical system is appropriately utilized, and that it isn't abused by the patient or by the provider." To do that, it's important to have data, structure and patient control, he says. "It's applying the same management techniques to the dollars that employers spend for medicine as they do for raw materials, wages and everything else."
The mistake that Dietrich sees employers making is that they give away their responsibility for managing their health care dollars to someone else—to insurance companies, HMOs and the like. "Our experience is that, if employers will apply the same focus to their medical dollars as they do to the other elements of their business, they're very good at managing the situation," says Dietrich.
"We think that if you want to manage this program, you have to remember that the key words are appropriate care. We're trying to save money, but we're also trying to ensure appropriate care—and that requires physician participation," says Hague.
Agrees Dietrich: "If we're going to solve our health care problem, we have to get our physicians on our side of the table working with us in a non-adversarial situation."
Networks provide Campbell with leverage within local health care communities.
Managed care usually is conducted by a third party. In this program, however, the employer is in the driver's seat. Although the plan is coordinated with the help of Burgett & Dietrich consultants in each city in which the plan operates, Campbell has a direct link with employees, doctors and hospitals so that more of its health care dollars go directly into care, rather than management of the health care program by a third party.
"A program like this works because you have leverage," says Hague. "These networks are in locations into which HMOs have never reached." HMOs typically are larger-city programs. The network provides a panel of physicians, just like an HMO, from which employees can pick. "If they find a doctor they like, they'll usually stay in the PCN. If they pick a doctor not in the PCN, the doctor probably will join it," says Hague. And often, when an employee signs up for the program, his or her family physician already is in the network.
Doctors who practice within a 40-50 mile radius of employees' homes generally are recruited to join the network. "We find that 90% to 95% of doctors in an area will join the program," says Hague. The program is attractive to health care providers because it helps focus care locally.
Unlike an HMO system, doctors participating in the network may refer a patient to any specialist, not just a PCN specialist, and Campbell's pays the costs incurred. "We just ask the physician to make sure that the utilization (treatment required) is appropriate," says Hague.
With an HMO, physicians are paid a salary or a predetermined annual per-patient fee. If patients are healthy, so is the HMO—it keeps all the money it doesn't use in providing services. But the more patients visit their doctors, the less the HMO makes. Explains Hague, "If an HMO has a bad administrative year, you may discover their costs go up sharply the next year."
Preferred-provider organizations (PPOs), on the other hand, blend aspects of indemnity plans with HMO-type services. Doctors who participate in PPOs agree to discount some services. Care may be monitored by a utilization review board, however, so physicians may feel compelled to hike prices in other areas to make up for these discounts.
"If you're in a PPO, you may discover that, although you've achieved some sizeable discounts, you're not always sure whether you have savings or not," says Hague. In this plan, every unit cost is reviewed each month, and any deviations are easy to spot.
Another feature of the network program is that the employer can contract unit-price guidelines with local hospitals and specialists before the network is set up, although some employers who use this plan choose not to until the plan is in operation and problem pricing is identified. In most cases, accepted physician fee schedules are agreed-upon before a network goes into action.
To be effective, the plan must have a sufficient employer base in a community, says Dietrich, "so that the providers have some desire to work with you." Some communities may start a PCN program with 500 employees, others may require 10,000. "It just depends on community size and available medical deliveries," he explains.
Hague generally figures that one employee represents a total of 3.5 patients. Therefore, if 1,000 employees sign up for the network plan, about 3,500 (including dependents) will be network members. In small towns, these numbers are significant to health care providers.
Campbell's has set up two networks in conjunction with other area employers, such as RR Donnelly, Fieldcrest Cannon and Abbott Laboratories, and has set up three alone. "In those cities, our employee size was significant, and our employer size in the community was so significant that we pretty well could take a risk on going it alone," explains Armstrong.
Campbell may set up more rural-area PCNs in the future, and currently is working on setting one up in Richmond, Utah, where the company has a bakery and frozen food division. "We're having a little difficulty getting another employer that's interested," says Armstrong, because the only other large employer in the city is a university. "It takes time and a lot of coordination contacting other employers and physicians, but we aren't going to give up."
Employees respond favorably to network-driven care.
The PCN program, which is designed mostly for firms that have manufacturing operations in smaller towns, also works for operations in which workers either are unionized or aren't unionized. Nearly half of Campbell's manufacturing employees live in rural cities. Two of the locations in which Campbell has PCNs are unionized; three aren't.
"Most unions are very reluctant to agree to plan changes that make their employees or member pay more, such as increased deductibles or contributions," says Hague. This health care program pays 100% of workers' medical costs. "Our unions have been very cooperative and helpful and have been quite open to this," says Armstrong. "They're very happy with the program."
The lower cost to employees is a big reason they go into the network. "Before, there was no alternative and no incentive not to go to Dallas, or some big city, for care," explains Armstrong. Now, workers have a reason to go locally, and it's a win-win situation for everyone concerned, including local care providers.
The other benefit to Campbell employees is that for them, it's a paperless system. "The employee simply goes to the physician and is treated and doesn't have to pay up front. It's direct claims submission from the physician to the claim payer. Employees love that," says Dietrich.
"Our experience is that we continue to see from year to year that an increasing percentage of our employees who have the program available, are joining it," says Hague. In all of the five locations, 50% or more of the employees participate in the network. In two of those, 80% or more of the employees are enrolled in networks. A total of 3,871 Campbell employees are network members.
Campbell's health care philosophy sets the tone for program creativity.
This cost-containment program fits with Campbell's health care strategy to provide what they call "Choices for a Better Future" in two important ways:
- It's specially designed for a distinct and separate employee population in rural areas
- It gives employees a choice in their health care.
"Our strategy is to have benefit values for employees that are competitively strong, at costs that are below competitive rates—so the value that the employee gets is equal to or better than the competition's," explains Armstrong. According to Campbell's perceived-value delivery ratio on health benefits, employees rate their benefits very high, he says. "But the cost to us, because of the creative way in which we attacked this problem, is less than the cost to our competitors," says Armstrong.
The company's health care policy is strategically aligned with Campbell's corporate goals. In the president's report in Campbell's 1991 annual report, CEO David W. Johnson outlines one of his strategies for the '90s: Develop as a front runner in the area of health and nutrition. "Top-flight food companies no longer can make a distinction between 'therapeutic' and 'cosmetic' products and survive. The focus is on both enhancing the quality of life and, where possible, extending life."
Campbell's organizational and product philosophy spills over into its personnel decisions. "This is a medical cost-containment strategy for rural America," says Hague. One of the benefits of this program, he continues, is that it helps reintroduce the family physician back into the practice of medicine. "Years ago, you always went to your general practitioner first," says Hague. Back then, the Dr. Hinterlands of America were more than just healers, they also were counselors—but when specialists came along, health care became dissected, he adds. This program has helped Campbell and its employees become reacquainted with doctors and health care services in the communities.
"I think this program is of interest to U.S. corporations that have the same signals that we've had," says Hague—namely, strong indications of higher medical costs in outlying areas. "If you have an operation in rural America, if it's manufacturing-oriented, if your ability to make plan design change is limited and if you're in a town with one or two hospitals, then this is a program worth looking at."
Personnel Journal, May 1992, Vol. 71, No. 5, pp. 74 - 81.