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Is Healthcare Part of the Facility Location Decision?

Skyrocketing Costs and shifting legislation have pushed an area’s healthcare affordability and quality into the mix of primary site selection considerations.

November 2012
Labor costs are always a top factor in any site-selection decision. Not only are they typically the largest operational expense, they are also a long-term cost that can be difficult to lock in. One reason for this is the ever-changing cost of the benefits package, especially healthcare.

Atop these concerns has been introduced the 2,000+-page Affordable Care Act (ACA), a highly complex bill that has put into motion a fundamental shift from an inefficient pay-for-service structure to a pay-for-results structure. This will be driven by innovative ideas like affordable care organizations (ACOs) and “medical homes,” which depend on hospitals, clinics, physicians, and other healthcare professionals working closely to deliver better-coordinated patient care at all levels — and at lower cost.

Some states like Wisconsin and Minnesota got a jump on these endeavors years ago and already have innovative programs in place that are driving down the cost of healthcare. In Wisconsin, collaborations between the Wisconsin Hospital Association and hospitals, providers, payers, and private-sector companies have resulted in big decreases in healthcare costs, by up to nearly 50 percent in some cases.

According to John Torinus, former CEO and current chairman of the board for Serigraph in West Bend, Wisconsin, the national average for healthcare cost is about $15,000 annually per employee. “Our cost is $9,000 per employee, which is about 40 percent below the national average,” says Torinus. “The benchmark for best practices is $7,500–$9,000 per employee.”

If a company, then, with 500 employees and an average healthcare cost of $15,000 per employee locates in a state where it’s possible to knock those costs down by 50 percent, that would save about $3.75 million every year — a huge location-dependent savings that many companies fail to consider.

Top Five States
According to the U.S. Department of Health and Human Services’ Agency for Healthcare Research and Quality (AHRQ) in Rockville, Maryland, the top five states in the country for quality of healthcare are Wisconsin, Minnesota, Massachusetts, Iowa, and Maine.

“Of more than 150 measurements of care and treatment settings, these states are shown to out-perform other states in terms of overall access and quality of care,” says Dr. Carolyn M. Clancy, director of AHRQ.

These five states are similar in that they have taken proactive efforts to improve healthcare quality and access for their residents. In Maine, for example, which has a largely rural and lower-income population, state officials work to ensure their uninsured residents have access to quality health services. “In other states, such as Massachusetts, leaders have implemented broad healthcare insurance reforms so that virtually everyone can have health coverage and services,” adds Clancy.

Several healthcare systems in Wisconsin have already been operating as ACOs, including Bellin Health and ThedaCare, which have been innovative partners with employers for providing high-quality care at the lowest possible cost. Other organizations, such as the Wisconsin Collaborative for Healthcare Quality, track a variety of clinically relevant metrics and post the data online to help businesses choose providers, help providers improve their practices, and help payers create better payment models.

Dedication and Focus
Significant healthcare savings don’t happen overnight; they require intense dedication and focus. Cost reductions are easier to achieve in states that have organizations and healthcare systems that are willing to be creative and open-minded when working with the private sector.

For maximum cost reductions, companies need to self-insure and partner with a provider to build and staff on-site clinics, which focus on primary care and disease management, especially diabetes and obesity. This is a major reason Serigraph has achieved such remarkable results.

“An on-site primary care facility is the best way to manage the 80/20 rule,” says Torinus. “Eighty percent of the cost of healthcare is spent on 20 percent of the population, which usually has multiple chronic conditions.”

As reported in The New York Times, Bellin Health, based in Green Bay, is one of the top healthcare systems in the country for below-average costs and high-quality healthcare. It partners with employers to establish on-site clinics staffed by physicians, physician assistants, and nurses. The strategy works — Fincantieri Marine Group, a manufacturer in Marinette, Wisconsin, saved $2 million in its first year with Bellin. Healthcare costs for LaForce, a building products manufacturer headquartered in Green Bay, have grown less than 2 percent a year over the last four years since partnering with the organization.

Currently Bellin Health insures more than 2,500 employers, 75 of which have on-site primary care clinics. “The big key to cost reduction is placing healthcare services on site,” states Bellin Vice President Randy Van Straten. “Then use health data and cost data to create a health advancement strategy. Manage chronic conditions. Identify and deliver product enhancements that will work best for each situation — even [consider] things like putting occupational therapists and physical therapists in the plant to help workers on the lines.”

Healthcare Reform Legislation

Minnesota is another innovative healthcare leader. In 2003 it was the first state to pass mandatory adverse-health-event reporting based on National Quality Forum standards. In addition to its AHRQ standing, a recent report from the Centers for Medicare and Medicaid Services indicates Minnesota is among the lowest-cost states for hospital care. Further, according to the United Health Foundation’s America’s Health rankings, Minnesota was the sixth-healthiest state in the nation.

Bill Blazar, senior vice president for the Minnesota Chamber of Commerce, notes, “Every business is concerned with the cost and quality of healthcare — it’s a big deal, even in a highly ranked state like Minnesota.”

Blazar says that Minnesota’s inflation rate for healthcare cost is far lower than that of most states because of the healthcare reform legislation that was passed in 2008, two years before the ACA. High-quality, affordable healthcare systems should be a significant site selection factor because they can lower operating costs significantly — “a lot more than not having to pay property taxes for five years,” he says.

Eric Borgerding, executive vice president for the Wisconsin Hospital Association in Madison, also believes that being a national leader in healthcare quality and cost is an attractive recruiting tool: “Healthcare costs are a key part of total labor cost for many businesses. A state like Wisconsin, through our collaborative efforts to moderate healthcare costs and deliver better value for healthcare dollars, should have a competitive edge when it comes to attracting new business operations or expansions compared to other states.”

Moving Forward

Buzz Canup, founder and president of Canup & Associates in Greenville, South Carolina, believes that more companies will start paying closer attention to healthcare costs as the larger requirements of the ACA kick in about a year from now.

“Often our clients have not totally defined their benefits package,” he says. “Benefits and healthcare might be 25 percent of the total payroll cost. Sometimes we will drill down into the healthcare numbers and evaluate accessibility, location, distribution, type of services, and quality.”

Quality and affordability of healthcare comes down to more than just dollars — it is an essential component of quality of life, which is still a significant factor in the site-selection process.

“Highly ranked healthcare in a region or state is a very important quality-of-life factor for companies,” says Larry Gigerich, managing director for Ginovus in Indianapolis, Indiana. “While not as highly ranked as work force quality and costs, tax structure, real estate and occupancy costs, and economic development incentives for most projects, quality of life — especially healthcare — seems to be more important for corporate headquarters and other higher-paying white-collar projects.”

Gigerich notes that a number of his European-based clients have indicated the importance of quality healthcare services in U.S. markets they are considering for a project. “For example,” he says, “Our client Roche Diagnostics has indicated that the strength of the healthcare support system in Indiana is an important reason why it has continued to grow its North American headquarters in Indianapolis.”

“As the cost of healthcare continues to climb, communities that offer better healthcare and better health for employees are likely to be attractive to prospective employers,” Clancy concludes.

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