Retail giants Walmart and Lowe's have announced a new healthcare benefit for their employees: no-cost knee and hip replacements. As of Jan.1, care and consultations for the procedures will be covered at 100 percent, with no copays or deductibles.

Of course, there's a catch. Employees must receive care at one of four hospitals: Johns Hopkins Bayview Medical Center in Baltimore, Kaiser Permanente's Orange County?Irvine Medical Center in California, Mercy Hospital Springfield in Missouri, and Virginia Mason Medical Center in Seattle. Travel, lodging, and living expenses for the patient and a caregiver are included.

The program is voluntary for the retailers' roughly 1.5 million employees, and those who choose to have a knee or hip replacement done elsewhere will incur the usual cost-sharing.

This move by the retailers?and the Pacific Business Group on Health's Negotiating Alliance, which helped arrange the deal?highlights three trends that are increasingly central to managed care. All of these trends have one commonality: They aim to lower the costs of healthcare.

1. Narrow networks

What the participants are calling the Employers Centers of Excellence Network is the ultimate narrow network. Of the 20 to 30 prescreened hospitals asked to submit requests for proposals, only four were chosen for the nationwide program.

Similarly, employers and insurers across the country are increasingly relying on narrow networks to control the costs of insurance coverage. Many plans on the newly opened health insurance exchanges use narrow networks. All of WellPoint's exchange plans, for example, have narrow networks.

Even markets that have historically preferred broad networks, such as Philadelphia and Houston, are beginning to succumb to the lure of narrow networks. In a new survey, more than 80 percent of small-business owners say they would choose a narrow network plan that included only 25 percent of providers if it lowered premiums by 20 percent (Small Employer Perspectives on the Affordable Care Act's Premiums, SHOP Exchanges, and Self-Insurance, accessed Oct. 16, 2013).

2. Cost transparency/fixed prices

But narrow networks and their discounted rates are not enough to hold down healthcare costs. Employers and insurers are also negotiating with providers for fixed, transparent prices, which allow them to budget for the costs of coverage. "The cost of care has been very unpredictable," says David Lansky president and CEO of PBGH. But the agreement with the hospital network removes potential price volatility.

What's more, the U.S. Department of Health and Human Services has released data comparing average hospital charges for the 100 most common Medicare inpatient claims and the 30 most common outpatient procedures. While it's true that the data does not reflect rates negotiated by insurers or other discounted rates, the release of this information is a strong signal and puts even greater pressure on providers to offer cost transparency.

3. Focus on quality

When potential members of the hospital network were screened, the criteria was based on quality of care. "Each of these [four] providers has? above average positive patient outcomes in knee and hip replacement procedures," says Sally Welborn, senior vice president of global benefits for Walmart. Among the quality measures were rates of readmission and surgical site infections and patient satisfaction scores. Why? Because better outcomes translate into lower costs.

This isn't the first time that the retailers have made such agreements. Lowe's has a partnership with the Cleveland Clinic for heart surgeries, and Walmart has a program with the Mayo Clinic that covers transplants. It expanded that program last year to include more procedures and facilities.

Like Walmart and Lowe's, payers are focusing on quality of care. Quality measures are a key component of accountable care organizations. Last year, the Centers for Medicare & Medicaid Services began withholding a percentage of hospital reimbursements based on performance, including readmissions and patient experience, meaning that providers, as well as payers, face a financial penalty if quality measures are not met.

For now, the question is how many employees of the two companies will take advantage of the new program? Will they prefer to see their own physicians and receive care at nearby facilities? Or will they take advantage of the opportunity to receive free medical care? Whatever the answer, one thing is certain: Employees and insurers will continue to fund programs like these to contain the costs of healthcare.

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