PepsiCo to pay for employees’ surgeries at Johns Hopkins

Posted Dec. 12, 2011, at 6 p.m.

BALTIMORE — PepsiCo has signed a deal that allows employees and dependents across the nation to get certain surgeries at Baltimore’s 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, pre-operative 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 Business 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 Cos. 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 benefits for PepsiCo.

Analysts say such programs can also take waste out of the medical system and improve care as hospitals compete for business.

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