Peabody Pays Mayo Clinic Prices to Save on Health-Care Costs

By Aliza Marcus

Sept. 26 (Bloomberg) -- Ken Ferguson, 54, maintains the bulldozers and heavy trucks that haul coal at the Belle Ayr mine near Gillette, Wyoming. In return, his employer, Foundation Coal Holdings Inc., provides his family with the best medical care it can buy.

Ferguson's wife, Shanna, had her colon removed last year because of chronic inflammatory disease. Foundation sent her 700 miles away to the top-ranked Mayo Clinic in Rochester, Minnesota. The company covered the $85,000 bill for the operation and follow-up reconstructive surgery and even paid for Ken's motel.

``I was at the best place with the best doctors possible,'' said Shanna, 50. ``And we saved money.''

So did Foundation. The coal producer says it has found an unconventional way to cut health costs: Seek out the nation's best care and give workers incentives to use it. About two-thirds of operations have proven to be cheaper at better-rated hospitals out of state. Even when the price was higher, the Linthicum Heights, Maryland-based company saved money by reducing misdiagnoses, complications and repeat procedures.

Health-care costs for an average employee at Foundation's two Wyoming mines have dropped about 5 percent a year since the program took full effect in 2005, while U.S. spending rose about 7 percent annually. As Foundation's Wyoming workforce grew, its total medical bills remained steady at about $5.5 million a year.

$2.2 Trillion

Foundation's experiment in Wyoming could be a model for politicians and insurers seeking to curb the growth in U.S. health-care spending, now $2.2 trillion a year, said Mark McClellan, who served under President George W. Bush as head of Medicare and the Food and Drug Administration.

Peabody Energy Corp., which is based in St. Louis and is the world's largest coal producer, has joined Foundation in offering the benefits program. The company has signed up the workers at its surface-mining operations in Wyoming's Powder River Basin.

Health care takes 16 cents out of every dollar in the U.S. economy, compared with about 8 cents in Japan and 11 cents in Germany, according to the World Health Organization. Spending in the U.S. may reach 20 percent of the economy within a decade, government economists estimate.

``Would we have saved money if Shanna did the operation locally? Maybe,'' said David Crowder, a retired surgeon hired by Foundation and Peabody to cut health costs. ``But would the operation have gone as well? Unlikely. It's costs down the road you have to look at.''

Unique Effort

Medical complications can require an extra $5,000 for specialized X-rays or more than $30,000 for additional surgery, said R. Balfour Sartor, chief medical adviser to the New York- based Crohn's & Colitis Foundation of America and a professor of medicine at the University of North Carolina in Chapel Hill.

Many U.S. businesses try to contain health spending by encouraging smokers to quit or opening at-work clinics. The two coal companies are pioneers in trying to boost quality of care by directing employees to nationally ranked hospitals, according to Len Nichols. Nichols is head of the health policy center at the New America Foundation in Washington and worked in President Bill Clinton's administration.

The approach in Wyoming is a twist on efforts by insurers and Medicare, the U.S. health program for the elderly and disabled, to encourage better care by rewarding hospitals that meet national quality standards.

Crowder, 64, drew up a list of hospitals for different procedures based on nationwide quality ratings developed by Health Grades Inc. The Golden, Colorado-based company ranks medical centers using data from sources including Medicare and state health programs.

Mayo Versus Cheyenne

The Mayo Clinic, which receives a five-star ``best'' rating for cardiac care, charges an average of $66,529 for heart bypass surgery, according to Health Grades. The Cheyenne Regional Medical Center in Cheyenne, Wyoming, just 220 miles from the coal mines, charges $98,227 for the same operation and gets a one-star ``poor'' ranking.

``We are committed to providing quality cardiac care for our region,'' said Scott Balyo, spokesman for the Cheyenne hospital, in an e-mailed statement. ``Based on data released this summer from Medicare, we are meeting national averages.''

Mine workers who choose Mayo, the Cleveland Clinic, or one of seven other ``centers of excellence'' on Crowder's list, get reimbursed for travel and lodging and reduced co-payments. Otherwise, they get the company's standard insurance coverage.

'Improving Delivery'

``The health-care reform debate is usually about how you lower the cost of care and make insurance more affordable by squeezing prices or providing subsidies,'' said McClellan, director of health policy at the Brookings Institution in Washington. ``Increasingly, politicians on both sides are talking about finding ways to make it more affordable by improving delivery. This is a real example.''

Derrell Carter, a spokesman for Peabody, said in an e-mail that Crowder's program is ``an innovative solution for providing top-notch health care at a competitive cost.''

Crowder, hired late in 2001, first tried negotiating lower prices, expecting that local providers would be receptive to a pitch from two companies that together cover more than 5,000 people living in and around Gillette, a town of 30,000. Hospitals and clinics with a near-monopoly on services in the rural area ignored him, Crowder said. He decided it didn't matter.

``Even if I got a discount, bad care at a discount is still bad care and it'll be more expensive in the long run,'' he said.

Robert Morasko, chief executive officer of the Campbell County Memorial Hospital in Gillette, said the facility provided excellent care to its patients at low prices.

``There's no question our prices are competitive,'' he said. ``The coal companies do use us for a lot of surgeries. There are some isolated cases where they don't.''

Knee Gives Out

So when Ken Ferguson's left knee gave out in 2006, six years after the cartilage was repaired in Gillette, he bypassed his local doctor, who had said the next step was knee replacement surgery.

Ferguson went to Orthopaedic Center of the Rockies, which is in Fort Collins, Colorado, and on Crowder's recommended list. The torn cartilage was again repaired and Ferguson was back at work in two days.

The total cost: about $12,000, compared with about $50,000 for knee-replacement surgery in Wyoming, which would have required weeks of recovery.

``When I had it done locally, I missed 10 days of work because of the pain and healing time,'' said Ferguson, who lives in Gillette. ``Not this time. Local doctors think we're taking money out of their pockets, but we're just trying to get the best care the first time around.''

To contact the reporter on this story: Aliza Marcus in Washington at amarcus8@bloomberg.net

Last Updated: September 26, 2008 00:01 EDT

		Email this article Printer friendly format