Centers of Excellence: Trust, but verify 

Centers of Excellence aren’t new — carrier COEs such as those for transplant surgery have been around for decades. What is new is the pace of expansion and the breadth of services now being packaged and marketed to self-funded employers. As plan sponsors look for better value, the COE “siren call” seems compelling: improved outcomes, lower costs for elective procedures and an increasingly broad menu that often extends well beyond traditional musculoskeletal and bariatric surgery into additional surgical specialties, outpatient procedures, oncology care, infusions, imaging and even substance use disorder treatment.

COE vendors and even carrier-sponsored programs typically present data showing both better quality, such as fewer complications and readmissions, and significantly lower per-case costs. Like any vendor evaluation, though, the key question is: Will those results hold true for your population, starting with your baseline?

What we’ve learned from independent validation

When Mercer has evaluated COE vendor networks for clients, the quality story frequently checks out. In one recent analysis, Mercer compared the COE vendor’s provider network to providers in that specialty and geography identified as high quality by our QualPic tool. We found significant overlap, suggesting the vendor was largely selecting high-performing providers, despite differences in the quality metrics used by each team. Even so, we believe it is important to verify the quality of any proposed network, especially as these networks change over time and more solutions come to market.

The financial story is more nuanced. Most COE vendor contracts are structured as bundles — a single package price that includes the surgery and related services, which typically include facility and professional charges and, in some cases, pre-op consultation, testing and some post-op care. By contrast, most carrier networks reimburse on a fee-for-service basis, which historically made “apples-to-apples” cost comparisons difficult.

Today, with modern data warehousing, it’s possible to build your own surgical “bundle” from raw claims. Mercer has worked with multiple employers to validate vendor per-case savings estimates by selecting common musculoskeletal and bariatric CPT codes, pulling all procedure-related charges, including relevant pre- and post-surgical care, and reconstructing an employer-specific claims-based bundle price to compare to the vendor’s bundled price. Here, results have been mixed.

The baseline matters — especially the carrier book of business benchmark

One theme shows up repeatedly: the vendor’s top-line benchmark — the carrier book-of-business rate it uses as the comparison point to determine savings — often appears inflated relative to the level of spending seen in an individual employer’s claims data when we “rebuild” the bundle by aggregating all relevant fee-for-service surgical allowed charges.  

This validation work is especially important when a vendor charges fees as a percent of savings. If the savings are calculated off a benchmark that’s higher than your actual baseline, then the vendor fee may be artificially high, thereby reducing or even eliminating net savings. And if there’s no net savings, you can’t “make it up on volume.”

COEs can deliver value beyond unit cost

Unit cost is not the whole story. COE programs may still be attractive because they can offer access to high-performing providers, better coordinated member support and navigation for complex procedures, and surgical evaluations that may lead to avoided surgeries — a potential pathway to meaningful savings if true. But those elements should be evaluated with the same discipline as hard-dollar claims savings.

How to evaluate COEs with discipline: Practical actions

• Run a targeted spot check using your own data. Rebuild the bundle in the data warehouse to validate the vendor business case either before purchase or after implementation — especially when considering shifting procedures from voluntary to mandatory.
• Negotiate guardrails on shared savings. Consider caps on maximum shared-savings fees or using alternative fee structures, for example, a percent of the bundle price or PEPM rather than a percent of savings.
• Push for a lower vendor share. Regardless of the payment approach, ensure the structure makes net savings achievable — especially after considering incentives, travel reimbursement and other program costs.
• Be cautious about baking savings into the budget prospectively. Treat projected savings as contingent until validated against your baseline and performance to date.
• Require performance guarantees tied to measurable claims, especially surgical avoidance. Avoid reliance on member self-reported anecdotes. Instead, measure outcomes such as procedure rates over time, for example, common surgeries per 1,000 members (for the full covered population).
• Include savings and performance audits in the contracts. Consistent vendor governance is important with any solution, and COEs are no different. Incorporate credits in contracts to allow external validation of vendor performance. 

This framework can be applied retrospectively, it will provide both a consistent approach and a great test of some of the more important savings and utilization assumptions. Putting in the effort up front to validate a potential solution before implementation will pay dividends on the back end when HR leaders ask about savings.

Bottom line

COEs may offer real improvements in quality and member experience and, at times, a real cost advantage. Furthermore, they can play a crucial role in an employer’s high-value care strategy. But in a market where vendors are expanding into radiology, infusions, oncology and more, it’s increasingly important to apply a consistent, disciplined approach to validating unit cost savings and vendor fee structures. Trust, but verify — or, as Mercer consultants in ancient Rome used to say, caveat emptor!