GM tries steering health costs: Is what's good for GM good for doctors?

Physicians are watching intently as the world's largest automaker finds ways to affect the cost and quality of care. Lately, they aren't sure they like what they're seeing.

By Amy Snow Landa — Posted July 18, 2005

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In 1953, as he was undergoing confirmation as secretary of Defense, GM president "Engine" Charley Wilson is said to have declared: "What's good for General Motors is good for the country."

What he actually said was, "We at General Motors have always felt that what was good for the country was good for General Motors, and vice versa." Still, physicians these days can't help but think how the misquote shows how corporations impose their will in part because they assume it's what's best for everybody.

GM, experiencing one of its worst financial crises, is working on imposing its will in health care. If any employer can, it's GM. With about 150,000 employees in 32 states, as well as hundreds of thousands of retirees, and their families, the company provides health coverage for more Americans -- about 1.1 million -- than any other private employer. It also pays a hefty price -- about $5.2 billion in 2004 and a projected $5.6 billion this year.

GM was one of the companies behind the Leapfrog Group, a business consortium dedicated to increasing health quality and patient safety while keeping costs under control. GM, in cooperation with the United Auto Workers, created the LifeSteps program to improve the health and wellness of its workers and retirees.

But lately, GM has started to impose its will more specifically on costs, including physician reimbursement. GM explicitly blamed much of its $1.1 billion first-quarter loss on health care costs. It's seeking major concessions from the United Auto Workers on employee and retiree health benefits, even before its union contract expires in 2007.

Physicians in Michigan have sued the administrator of GM's health plans over it changing contract terms, and physicians in Missouri have fought another administrator's attempt to impose a "performance" plan that allows GM workers greater coverage if they go to certain physicians.

GM wasn't sued in Michigan, nor did it take the brunt of the blame in Missouri. But its presence in both cases means physicians are beginning to think that what's good for GM might not be good for them.

"[GM's] methodology up to this point has been to buy and purchase products that have large benefit structures, and now they're complaining about the cost of health care," said John MacKeigan, MD, a Grand Rapids, Mich., colorectal surgeon and immediate past president of the Michigan State Medical Society.

Generous benefits

A big reason GM is motivated to do something about its health care costs is because of its past generosity, observers say.

Paul Ginsburg, PhD, president of the Center for Studying Health System Change in Washington, D.C., noted GM's hourly workers pay, on average, just 7% of their health care costs each year, far below the national average of 32% among employers surveyed by Hewitt Associates. Ginsburg's organization studies health trends in 12 metropolitan areas, of which five -- Indianapolis, Cleveland, Phoenix, Boston and Lansing, Mich. -- have one or more GM facilities.

Ford and DaimlerChrysler are in a similar boat, but GM's problems are compounded by the number of retirees on its health rolls, Ginsburg said. Retiree health benefits cost the automaker $3.6 billion last year -- more than two-thirds of its total health care spending. GM provides benefits to 2.6 retirees for every active worker. By comparison, Ford's ratio is about 1-to-1 and DaimlerChrysler's is about 1.1 retirees per active worker.

So among large U.S. employers, GM has been a leader in driving health care innovation.

In 2000, GM played "a critical role" in launching the Leapfrog Group, an employer coalition dedicated to improving health care quality and reducing preventable medical errors, said Leapfrog CEO Suzanne Delbanco. GM's then-CEO Jack Smith, who also led the Business Roundtable, persuaded the group of Fortune 500 CEOs to provide $1.5 million in seed funding for Leapfrog.

GM has also worked aggressively during the past decade to boost the health status of its workers, retirees and their dependents.

In 1996, it collaborated with the UAW to create the largest health and wellness program in the nation. Called LifeSteps, its offerings to all union members include on-site health screenings, disease-management programs, fitness facilities and a quarterly newsletter. About three-quarters of GM's active workers participate.

To show the program has made a difference, Tim McDonald, director of GM's health and wellness programs, points to heart disease, which dominates morbidity and mortality among GM members.

"We know that so much of heart disease is lifestyle-related," McDonald said. "When I look at our data, we've done a remarkable job, among people who participate, in helping them become physically active, lose weight, stop smoking, and do a better job at blood pressure and lipid control."

Start-up costs for LifeSteps "were pretty significant," he acknowledged. "But in the last several years, we've turned that around and we're now getting a positive return on investment."

No matter how positive a return GM gleans from LifeSteps, however, it's a drop in the ocean compared with the cost of its health benefits, which the company says contributes $1,500 to the price of every car its sells. One strategy of cost-cutting is to cut, again, the number of employees.

Physicians in communities where GM is a dominant employer are paying close attention to GM's plan to reduce its hourly workforce by 20% -- about 25,000 workers -- and to close factories in locations yet to be specified. That would leave GM with 125,000 employees, down from 177,000 only five years ago, and down from a 1979 peak of 600,000. The company says the latest job-cutting would save it $2 billion a year.

The prospect of plant closings is a concern in Missouri, said Jim Peterson, MD, a gastroenterologist and president of the St. Charles-Lincoln County Medical Society.

"We're all very nervous," said Dr. Peterson, whose practice is about two miles from the GM assembly plant in Wentzville, Mo. "They say it won't hit Wentzville, but you never know."

Physician battles

What has hit Wentz-ville, and also has hit GM's home base of Michigan as well, is a change in physician compensation that appears to portend shifts for any physician who contracts with a GM-sponsored health plan.

Physician groups are resisting a pilot program run by UnitedHealthcare -- on behalf of UPS and DaimlerChrysler as well as GM -- that uses patient claims data to divide physicians in its PPO network into "performers" and "non-performers."

Initially, about three-quarters of the doctors -- those whose costs were found to be higher than 80% of the average -- were determined to be "non-performers." The resulting uproar, including protests from the American Medical Association, the Missouri State Medical Assn., the St. Louis Metropolitan Medical Society and the St. Charles-Lincoln County Medical Society, prompted United to raise the "performers" cut-off to 100% of the average.

Among physicians who initially didn't make the cut was Dr. Peterson, the suburban St. Louis gastroenterologist, who said his costs were found to be about 85% of the average. "In February, I was not a 'performer,' " he said. "Eight weeks later I was, but my practice pattern hadn't changed."

The physician organizations have not backed off their criticism of the UnitedHealth Performance plan, which they say is based on costs, not quality, as United maintains. BJC Healthcare, a major St. Louis hospital system, has dropped United as a result.

As the program has spread, the physician criticism has followed. The Shreveport (La.) Medical Society, whose physicians serve an area with a GM plant, sent a letter to United in March opposing the pay-for-performance plan. The Medical Group Management Assn. also has asked the insurer to suspend it.

In Michigan, doctors were jolted last year when, they said, Blue Cross Blue Shield of Michigan decided, as GM's administrator, to change the terms of its existing PPO contract.

Doctors in the network were informed -- without any prior negotiation -- they would have to accept PPO fees for GM union members.

The Michigan State Medical Society and the Michigan Osteopathic Assn. filed a lawsuit. The Blues said it had done nothing wrong, and further responded by threatening to kick out of its network any physician who would not accept the reduced rates. (The Blues eventually agreed not to follow through on that threat as long as the lawsuit was active.)

Although the lawsuit is against the Blues, the underlying issue has just as much to do with GM, said Dr. MacKeigan. "The lawsuit is as much against a trend by employers to change benefit structures mid-stream without allowing physicians to be at the table."

The motivation clearly is to find savings for GM, said Jim Richard, DO, a pathologist in Lansing, Mich., and former president of the Ingham County Medical Society.

GM is "grasping at every little thing they can to get by, and appropriately so -- they're in a crisis," Dr. Richard said. "But the issue is that once the precedent is set [by the Blues], it will continue to be thrust upon physicians, and that's just not acceptable."

GM would not comment on the lawsuit in Michigan or the controversy involving the UnitedHealth Performance program. But GM spokeswoman Carey Osmundson said the company is "looking for every option to reduce costs." The insurers with which GM contracts "know their business," she said. "And we look to them to provide us with their expertise."

But physicians worry GM and its insurance administrators will get harder on doctors as the company tries to dig out of its financial hole. For every good program like LifeSteps, they fear, there's a UnitedHealth Performance lurking.

"We're hoping that GM will come out of this process stronger," Dr. Richard said. "The fear is the solution will be drastic and abrupt."

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Rising costs

General Motors' U.S. health care spending has almost doubled during the past 10 years.

1996 $3.0 billion
1997 $3.1 billion
1998 $3.3 billion
1999 $3.6 billion
2000 $3.9 billion
2001 $4.2 billion
2002 $4.5 billion
2003 $4.8 billion
2004 $5.2 billion
2005 $5.6 billion

Note: Figure for 2005 is projected.

Source: GM

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Healthy contributions

  • GM's 111,000 hourly workers pay 7% of their health care costs out of pocket.
  • GM's 39,000 salaried workers contribute 27% of their health care costs out of pocket.
  • American workers, on average, pay about 32% of their health care costs out of pocket.

Sources: GM, Hewitt Associates

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GM-backed initiatives

LifeSteps: GM's health and wellness program that offers all of its 1.1 million members information and resources to help improve their personal health status.

The Leapfrog Group: Founded in 2000 by GM and other members of The Business Roundtable, the coalition of large employers focuses on improving patient safety.

Southeast Michigan e-Prescribing Initiative (SEMI): Launched by the Big Three automakers and the United Auto Workers union earlier this year, the initiative is intended to encourage physicians in Michigan to voluntarily adopt electronic prescribing.

Lean Manufacturing Workshops: GM offers hospitals interested in boosting their efficiency the benefit of lessons learned from its own experience making auto assembly plants more efficient.

Source: GM

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