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.
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.
Such a health model is rare in the industry, but more companies may consider it as they try to simplify a system where the cost and quality of a procedure can vary widely in some states. Hospital costs in Maryland are more predictable because the state sets rates.
"This is really leading edge in a good way," said Helen Darling, president and CEO of the National Group on Health, a Washington, D.C., nonprofit that advises large companies on health issues. "I think the more these leading companies do this, the more it will grow in popularity."
Darling said it is mostly large, sophisticated companies moving to such collaborations with hospitals. Lowe's Companies Inc., the home improvement retailer, entered into a similar arrangement last year to send workers to Cleveland Clinic for heart surgery.
Mercer Health & Benefits LLC, which brokered the deals for Lowe's and PepsiCo, said it is negotiating arrangements with other large companies that should be completed in the next year. Some of the companies are interested in agreements with Hopkins, said Mercer senior partner Eric Grossman.
Hopkins was approached by Mercer more than a year ago about developing a travel surgery program with companies, said spokesman Gary Stephenson.
He said the hospital has agreements with insurance companies and third party administrators to bundle fees into a single cost, but this is the first arrangement directly with a company. Hopkins said it does not expect a high volume of patients in the first year, but hopes to build this type of business.
"We would hope to enter into agreements with other regional and national employers," Stephenson said.
Analysts said such arrangements benefit hospitals by providing guaranteed business and highlighting their expertise.
PepsiCo, which has a self-funded medical plan, said cost savings weren't the main driver behind the agreement with Hopkins. Instead, the company was hoping to get better care for employees.
Sending workers to the best hospitals means less likelihood that complications will land a patient back in the hospital, which could cut long-term costs, according to PepsiCo. Patients should also be able to return to work sooner. And it will be easier for PepsiCo to predict its health care costs.
"The folks at Hopkins can focus on the best medical care for our employees and their families without worrying about if a meter is running, or about the financial impact of the care they are providing," said Bruce Monte, senior director of PepsiCo Health & Welfare Benefits.
Analysts say such programs can also take waste out of the medical system and improve care as hospitals compete for business.
Grossman said Mercer negotiates the cost of surgeries for the companies. Rates tend to be set at the national average for a certain procedure. He said there may be some long-term cost-savings because workers are healthier, but those savings are hard to measure.
Grossman said Mercer didn't expect the majority of workers to take advantage of the program, because many may be intimidated by taking a trip to another city for medical care. But he said participation in the program has been higher than anticipated. About 25 percent to 30 percent of eligible employees have taken advantage of the program; Mercer had predicted 12 percent to 15 percent.
"There is growing interest among large companies to make available to their employees the ability to have complex procedures done at the world's best facilities," Grossman said.
PepsiCo's arrangement is part of a broader approach by the company to promote preventive care and help employees lead healthier lifestyles. The company has clinics at some of its facilities, including 38 managed by Hopkins. The company also offers routine medical care at work sites, education programs on health, nutrition and exercise, on-site fitness centers and organized programs to encourage exercise.
PepsiCo said it may look to expand the collaboration with Hopkins.
"As we identify areas where there are surgeries and procedures … where Johns Hopkins provides that expert level of care, we may certainly look to expand the program," Monte said.
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