1996 Partnership Optimas Award ProfileBRHannaford Brothers Co

May 1, 1996
If there's such a thing as a sore spot of HR issues, it would probably be health care. We experiment with it, toy with it and still can never seem to get it quite right. Even those companies that claim satisfaction remain on continual lookout for a better way to handle our most costly employee benefit.

In 1992, Scarborough, Maine-based Hannaford Bros. Co. was no different. Although it was one of the largest supermarket chains in the Northeast, it had health-care expenditures that threatened to overshadow it. That spells trouble in the extremely cost-sensitive grocery bus iness. For every dollar of groceries sold, the company pulls only about 2 cents to the bottom line, so those 2 cents must be well-invested. Instead they were being sucked away by medical expenses: Hannaford's 1992 net profit was $50 million — an estimated $20 million was spent on employee benefits, short-term disability and life insurance. "Our health-care costs were just continuing to go up, and we really needed to find a way to start [addressing] that," remembers Peter Hayes, employee benefits manager.

One area to work on, Hayes knew, was the employees' behaviors and lifestyles. Employees needed to be informed consumers if costs were to decrease significantly. But they also needed to be encouraged to eliminate lifestyle choices that threatened to make them repeat customers for hospitals. How could Hannaford, a company with employees spread out across several states, truly get the message across? How could it make employees care?

The other side of the equation for health-care cost was determined by provider behavior. Were Maine's doctors performing procedures in the most efficient and cost-effective way? How could a company even find out? A company can impact the decisions its employees make, but how can it affect providers' behaviors?

The answer to both these questions was found in a duet of unique and challenging partnerships. The first was a collaboration between Hannaford and its own employees. The second was a coalition — the Maine Health Management Coalition — of large and small employers as well as hospitals committed to improving the way service and practice protocols are handled throughout the state.

The first partnership has been extremely successful thus far, netting Hannaford millions in cost savings. The second is on the cusp of impact — eliminating the state's estimated 20% to 30% of health-care costs caused by inappropriate medical procedures or lack of medical protocol (protocol, as a medical term, is basically a detailed, standardized set of instructions for any procedure). If the coalition succeeds, possible cost savings for the state of Maine are estimated at $720 million to $1 billion, approximately $600 to $900 per person in the state.

Employees become partners in savings.
A lot of employers are surprised at the cavalier attitudes employees display toward their benefits. If the plans are meeting workers' needs, you're probably not going to hear too much about them, one way or the other. When Hayes joined Hannaford's HR function — boasting a finance/accounting background — he was shocked at the laissez-faire attitude many employees demonstrated toward their health care. Hannaford had recently become self-insured, and was monitoring the new situation carefully. For the previous few years, health-care costs had been increasing by approximately 20% annually. Yet employees' attitudes remained removed at best. They seemed to believe their behaviors would have no ramifications. "The insurance company pays for it" was the credo. "Our first thrust in changing their behavior was to tell them 'No, your behaviors do matter,'" says Hayes. "We are the insurance company. Every dollar that you spend comes directly out of the company's pocket, and therefore out of your pocket."

Throughout 1992, Hannaford used continuous communications and reminders to keep pounding in the message: Your benefits are part of your total compensation package. If health-care costs continue to rise, there are fewer dollars for other types of compensation. Hannaford extended a partnership of sorts with the employees, a deal that if they worked to keep costs steady, they'd share in the gains. At the end of the year, the company hadn't reduced costs, but had kept expenses lower than projected. Hannaford shared the savings by giving each of its 19,000 employees a $25 check. "That started to get people's attention." But there was much more work to be done.

Although Hannaford had convinced employees that they were partly responsible for reeling in health-care costs, the company soon realized that this alone wasn't going to do the trick. Employees, although they had accepted the mission of becoming smarter consumers, weren't really sure how to complete this mission. The gap was painfully obvious just from reviewing employees' emergency room visits. Approximately 60% of ER visits were for nonemergency care such as colds, flus and migraines. The average age of patients was 28 — hardly likely candidates to experience acute health crises. Hannaford knew this wasn't intentional abuse. "A lot of these people were young, and out on their own for the first time," says Hayes. "Our supermarkets move a lot of our folks around quite a bit. So they went to new communities and just never got a primary-care doctor."

It was a lose-lose situation for both the company and its employees. Emergency-treatment costs are exorbitant, and the care for nonemergency ailments can be a long time coming, and then often cursory. Yet Hayes realized that health issues can be extremely intimidating for some people, especially those on their own for the first time. "If you have something wrong with you, it's scary, and you immediately think you need to go to the doctor or the emergency room to get that taken care of," says Hayes. If an employee sliced a finger, for instance, and was unsure whether it needed stitches, he'd probably take the better-safe-than-sorry route and head to a hospital.

A self-help manual called "Take Care of Yourself" helped stave off this knee-jerk reaction. A decision tree leads the reader either down the road to self-treatment or to a hospital for assistance. For instance, for a cut finger, the reader answers a series of questions, beginning with "Is the cut more than 2 inches long?" If the answer is yes, the path flows down to the next question: "Is the cut on a joint where you'll be doing a lot of bending?" The path will either finally recommend contacting a doctor or will advise on proper dressing at home.

But Hannaford knew that the human touch can be most reassuring, so it communicated via a toll-free, 24-hour advisory nurse line that allows an employee to go over the decision-tree questions with a professional. Although Hannaford had offered a nurse line for years, this was the first time employees really started using it. Hayes believes previously, without the self-diagnosis, people were intimidated to call because they didn't even know what questions to begin with. Says Hayes: "This was the first thing where I had people call me and say, 'This is great. Thanks.'"

As a result of such employee-education and empowerment programs, Hannaford reduced physician visits by approximately 20% and improper use of the emergency room by about 30% — saving more than $1 million the first year. "We changed the mindset of our people," says Hayes. "The good news is our costs are lower and we've taken out inappropriate utilization. The next threshold for us is that 20% to 30% of our costs are directly related to lifestyle issues. They're totally preventable encounters with the health-care system."

Basically, Hannaford wants to beat the oft-quoted 80-20 rule: Eighty percent of a company's health-care costs are caused by 20% of its people. Again, the company believes it can't just force healthfulness upon employees, but must enter into a partnership where it offers help and hopes employees accept.

One big health issue has been smoking: Maine has the sixth highest smoking rate in the country, as well as a correlating high death rate from cancers due to smoking. A few years ago, 27% of the Hannaford employee population were smokers. Because of the mortality rate involved, Hannaford put a little extra pressure on employees to accept help in quitting. It gave an 18-month notice that it would start increasing smokers' insurance premiums, and invited employees to smoking-cessation programs sponsored by the American Cancer Society. At the end of the 18 months, those who retained their habit began paying an extra $2 a week. The following year, the penalty rose to $10 a week. "We were having smokers pay us close to $500 more a year," says Hayes. "That's actuarially based — there are statistics that say smokers cost approximately $500 more a year in claims."

For the most part, however, the technique for changing lifestyle choices is more subtle. For instance, employees can receive risk appraisals that will identify potential trouble-spot behaviors and offer alternatives. They're voluntary for both employees and spouses; those who accepted risk appraisals at the beginning were rewarded with gift certificates to a Hannaford Bros. supermarket. Respondents are guaranteed privacy — Hannaford never sees the questionnaires, which are analyzed by an outside company. In return, employees receive information on their risk areas, and receive assistance in changing behaviors from wellness counselors. The wellness professionals are schooled in setting achievable goals. For instance, an employee with high blood pressure may set a goal with a counselor of simply seeing a physician twice a year. "We want to make sure the goals are achievable," says Hayes. "If employees can achieve them, they feel good about them." Hannaford is considering using case managers to handle the medical side of employees with more acute health issues.

Hannaford also has reached out to the provider community to help reinforce the messages, to take the time to encourage patients to start an exercise program, wear their seat belts or stop smoking. Says Hayes: "We asked, 'If we do a risk appraisal, and someone comes back as at risk for smoking, and that report comes to you, can you take the time to make sure you sit down with that patient and talk about that?'"

On the surface, it may sound too obvious to be effective: Encourage employees to be partners in their health-care expenditures and reap the rewards. It may be obvious. It's definitely effective: Because of the internal partnership with employees, Hannaford currently saves 20% a year from its expenses before the programs. For the past three years, there have been virtually no cost increases, and Hannaford enjoys health-care expenses that are approximately 60% of national norms.

Hannaford looks for external assistance.
Having whittled down the health-care expenses that lay at employees' doorsteps, Hannaford turned its sights outward. There's still another 20% to 30% of costs out there that aren't necessary. Those are the costs due to inappropriate, outdated or unprotocoled provider behaviors. "There are tremendous variations in practice patterns," says Hayes. "If you have a medical condition and you go to four different providers, you could get four very different treatment paths for that illness. The cost difference between those can be huge."

But you can't impact what you can't measure, and Hannaford was unsure how to track those differences — or whether it was possible to do so in the first place. Hayes didn't set out to form a coalition that would wrangle with one of the state's biggest health-care issues. In fact, the seed of the coalition was planted quite simply. John Benoit, an insurance broker with a Portland, Maine-based insurance company called the Holden Agency, was representing a group of small- and mid-sized employers. These employers wanted to increase purchasing power in order to duck the continual cost shifting created by big companies' moves to PPOs. This group was eager to enjoin a large organization such as Hannaford, so the supermarket chain was asked to join the conversation.

For the next six months, the dozen or so companies batted around various purchasing alliance ideas, with Benoit acting as facilitator for the smaller companies and Hayes working in a focus group of larger employers. The two sides concluded that a purchasing alliance wasn't their best bet because the group lacked a uniform benefit design — every company wanted something a little bit different. "We realized a good first step for us would be to figure out how we could leverage our group to impact the delivery system," says Hayes. "Our driving philosophy was that we didn't want to just cost shift. If we could change how health care was being delivered, then we'd all win."

But how could the group impact health care when it lacked contact with the health-care providers themselves? The market today is extremely fragmented: Providers tend to dialogue only with insurers, and employers tend to dialogue only with insurers. The group needed a forum in which employers and providers could sit down with each other and collaborate on the issues. "That for us became the blueprint," says Hayes. "We wanted to be able to get together with the provider community and say 'Our data shows we have these health issues. How can you help us fix them?'"

Once the coalition began to think all-inclusively, it realized that employers and providers did, after all, have a common agenda: to improve the population's health status. For instance, Portland-based Maine Medical Center had been offering smoking-cessation classes, which went begging. Yet at that same time, Hannaford had been spending big bucks developing its own programs. If the two organizations had been collaborating, the medical center would have had booming turnouts, and Hannaford would have been able to pinch some pennies.

Cynics may scoff at the idea of hospitals and employers working toward a common goal, but Benoit says the relationship is a logical one. "In a metropolitan area, you may go for a more aggressive approach," he says. "But in a rural state like Maine, it's important that certain hospitals remain open. If what we're trying to do is shut them down, we may be gaining in the short term but in the long term we may be really hurting significant access to health care in certain parts of the state. You have to look at it on a global basis."

In its search for health-care provider partners, the group got nibbles from several Maine hospitals, one of which was Maine Medical Center. Al Swallow, associate vice president for managed care and financial planning, says the hospital was intrigued by the idea of partnership in a group whose common interest was reducing the cost of health care and improving provider behavior. "The hospital came as a very willing and interested party in sharing and looking at data that would result in reduced resource consumption," Swallow says. "It's a forum in which there's really an official working relationship with what I view as the purchasers: the employers. It's great to have that open communication."

Soon a coalition was born, consisting of the initial group of smaller employers, several large employers — including Hannaford Bros., LL Bean and the Maine state employee workforce — as well as nine hospitals. The members drafted a mission statement, which Ray Nason, vice president of finance and administration for Portland-based Barber Foods, one of the founding small employers, paraphrases: "The mission of the coalition is to improve the health-care delivery system to the employees of member companies, as well as the community, and to determine through data analysis which are the most cost-effective ways to deliver health care."

The organization planned its goals and created a governance of fair representation, ensuring that equal numbers of large employers, small employers and providers have a voice on every committee, as well as on the board. They also set down a few ground rules, including 12 guiding principles and a bylaw requiring that any statement made on behalf of the coalition must be voted on unanimously. "It was the most incredible discussion I've ever participated in," says Benoit. "Here we had 24 different organizations of all sizes and industries finding a common thread of agreement." The newly formed nonprofit entity officially christened itself the Maine Health Management Coalition.

The coalition reaches for the brass ring.
No one could accuse the coalition of having an unambitious agenda. It's not every day a group sets out to mend its state's health-care situation. But the coalition wanted nothing less than to be able to track episodes of care from start to finish. This way it could eradicate costly variations in health care — for instance, doctors with high rates of hysterectomies because they were unaware of recent cancer treatments.

To do this, the coalition needed three things:

  • Data from all its members for all health-care encounters that go through the insurance system
  • A way to take all the disparate data and compile it in a uniform, comprehensible manner
  • A way to track patterns in the data and make recommendations.

The data itself was there, although it wasn't immediately accessible. Throughout 1994 and 1995, the coalition had to go through a tedious contracting phase to gain access to the insurance information. Many of the managed-care companies were concerned about handing over proprietary information, so contracting took some time. But once the coalition was granted access to the data, there was plenty — particularly when two of the state's largest insurance providers, Blue Cross Blue Shield and Healthsource, agreed to share claims data from their employers.

The coalition was concurrently embarking on a lengthy interview process to find the right organization to handle the data analysis. It found its data handler — the Maine Health Information Center (MHIC) — quite by chance, in an obscure reference buried deep in another group's proposal. The MHIC (pronounced "Mick"), upon being interviewed for the job, proved to be the least politically motivated of all the contenders. Just as importantly, it had done a great deal of work with legislative bodies, insurance organizations and nonprofits, and was well respected for producing quality information.

The MHIC developed a system by which it could take the data from an insurance organization or third-party administrator and merge the information to create the desired aggregate report. But what is unique in the whole United States about this database is that it holds outpatient records also. This allows employers to develop an understanding of an entire episode of care — from the point of initial diagnosis or office visit, to the specialist, to the hospital through the surgeon, back to rehab and the end result.

The MHIC participates jointly with another organization, called the Maine Medical Assessment Foundation, headed by Dr. Robert Keller. This center is dedicated to working in a noncombative fashion with the provider community in sharing database information provided by the MHIC. For instance, when data showed a pediatric medical practice had hospital admissions far above the state norm, Keller's group looked into it. The organization discovered that most of the providers were young pediatricians just starting out. They didn't feel comfortable sending children back home and so would hold them overnight for observation. In response, the foundation set up a buddy system, in which the new pediatricians were matched with seasoned doctors to alleviate their uncertainties. The foundation, which saves millions of dollars a year by correcting such practice patterns, is just now starting to use some of the coalition's data. Says Benoit: "If you can build episodic examples of care through the use of an employer database — provided by the coalition — have that claims data scrubbed up for use by an emerging program — which is the MHIC — and then reviewed by a highly respected clinical analysis arm — which is the Maine Medical Assessment Foundation — you have an extremely global approach to looking at how health-care expenditures occur in your state."

The coalition has only recently finished loading up claims data for 1993 and 1994, and is now concentrating on 1995. January of this year marked the first time the data was presented in aggregate form, and that report is being reviewed by the Maine Health Assessment Center. Still, the hard work is already beginning to pay off. Maine's state bureau of insurance has agreed to take on some of the funding for the project (approximately $60,000) in exchange for access to the group's data findings — until now, the bureau has been forced to rely on data from national tables. Hayes believes it's a nice exchange, especially to relieve some of the financial burden of coalition members, who've collectively invested more than $250,000 in the project (entering and receiving data costs 35 cents per contract, per month for each coalition employer).

"This is a unique coming together... What's different is there's a commitment here to really do something that improves the delivery of the system and health statuses of our communities.

Currently, coalition members are looking forward to the impact 1996 will have. For instance, already employers can get some of their company data compared to the coalition as a whole, or compared to other large or small employers. Nason of Barber Foods says even current data that's trickling in is helpful in making health-care decisions that will affect his company's 700 employees. "We finally have data to use as a frame of reference. We're finding some interesting comparisons, one of which is causing us to consider what we need to do for our people in the long term." The comparison Nason speaks of: Barber Foods has a much younger workforce than the average of the coalition, yet when it conducted an age-adjusted analysis, its workforce had a much higher potential for heart disease than the coalition average. The company is responding with targeted wellness programs and risk assessments.

Maine Medical Center's Swallow says that in 1996, as chair of the data committee, he plans to improve collection efforts to make the data more timely. He's also looking forward to applying the data from the past few years. "We want to use that data to change current practice patterns," he says. "As a provider, we have a huge interest in any information that can help us be more cost-effective."

Hayes is proud of the results so far, but equally proud of the collaboration that has occurred over the past few years. For instance, of the 135 health-care coalitions around the country, almost every one of them has the primary function of joint purchasing. Hayes doesn't know of any like the Maine coalition, in which employers and providers are partnering to change the system itself. "This is a unique coming together of stakeholders," he says. "What's different is I think there's a commitment here to really do something that improves the delivery system and health statuses of our communities."

From a small, slow start, the coalition today comprises 24 different entities, including nine hospitals reflecting 32 service areas across Maine. In a state with a population hovering around the 1 million mark, the coalition represents more than 100,000 covered lives — almost 15% of all of Maine. Last year, the governor, impressed with the effort, recruited Hayes for a newly created Maine Health Care Reform Commission, which is recommending a database for the entire state similar to the coalition's.

Thanks to Hannaford's internal partnership with its employees, the company has saved millions — and all but vanquished health-care as the sore spot of HR issues. Thanks to Hannaford's external partnership with employers and providers, it just may provide that service for all of Maine.

Personnel Journal, May 1996, Vol. 75, No. 5, pp. 48-55.