Turning public-sector scale into smarter health care purchasing

Health care affordability has become a budget and workforce issue for employers across the country. For state and local governments, the stakes are particularly high. Most states are required to balance their budgets, which means rising employee health care costs can’t simply be absorbed. They must be offset through higher taxes or spending reductions elsewhere, putting greater pressure on priorities like education, infrastructure and public safety. At the same time, governments must offer competitive benefits to attract and retain essential public-sector workers, like teachers and first responders.

That tension is becoming harder to manage as health care costs rise, but this is also a moment of opportunity. Health care is increasingly moving onto the agendas of governors, budget officials and other senior leaders. Much of the conversation focuses on state health care policy options, but there are concrete purchasing strategies that public plan sponsors can consider right now. Better data, greater transparency and new analytic capabilities are making it easier to understand where dollars are going, where cost and quality vary, and where focused interventions can make a difference.

Three strategies for smarter health care purchasing

State and local governments employ more than 16 million Americans and are among the largest purchasers of commercial health care in many markets. Their scale and concentrated workforce give them an opportunity not simply to absorb costs, but to use their purchasing power to demand better value. 

At Morgan Health, a business unit of JPMorganChase focused on improving the quality, affordability and equity of employer-sponsored health care, we see many of the same pressures across the commercial employer market. The specifics vary by purchaser and geography, but the underlying challenges look familiar: variation in provider cost and performance, misaligned payment incentives, and rising pharmacy costs driven in part by GLP-1s. 

Drawing on lessons from large employers and the experience of public purchasers already testing new approaches, we see three areas where state and local leaders can take steps to manage costs while protecting access to high-quality care:

1. Guide employees toward higher-value care

Where employees receive care can significantly affect outcomes and costs, yet differences in provider quality and value are often difficult for employees to see. State employee health plans can help close that gap by providing clear, comparable information on provider performance and pairing that with navigation and benefit design that encourages use of higher-value providers.

Connecticut offers one example. Its state employee health plan worked with health care technology company Embold Health to identify high-value providers and guide members to them through its Providers of Distinction program. After implementation, the state achieved cost savings ($1,600 savings per gastrointestinal procedure), while state employees experienced better outcomes (members less likely to need knee and hip replacements) and higher-quality care (more members opting for high-value care). 

2. Create better pathways for high-cost specialty care

A relatively small share of members can drive a disproportionate share of health care spending, particularly for expensive procedures where cost and quality vary. Rather than treating every care setting and provider as interchangeable, purchasers can identify high-cost, high-variation categories and create clearer paths to high-performing providers.

North Carolina's State Health Plan took this approach through a Network of Excellence for procedures including bariatric, spine and orthopedic care. In partnership with specialty care platform Lantern, the model directs members to selected surgeons and facilities that meet clear quality standards. In its first five months, the state reported approximately $12 million in savings, with spine surgeries costing 61% less than average carrier costs. 

Beyond specialty networks, public purchasers can offer care navigation for members with complex needs, particularly in high-cost areas like cancer and maternal health. These programs can complement high-quality networks by identifying high-risk patients early and guiding them to appropriate care plans, sites of care, and medications.

3. Manage drug spending more deliberately

Demand for new, innovative drug classes are driving demand – but changing purchasing decisions. GLP-1s, in particular, offer clinical promise while forcing purchasers to confront difficult questions about access, affordability and sustainable coverage.

There is no single answer, but purchasers have more options than simply covering or excluding these drugs. Health plans can examine who is using high-cost medications and what outcomes they achieve, then consider strategies like utilization management, integrated cardiometabolic care programs, formulary design, financing arrangements, and eligibility and coverage requirements. 

The goal should be a sustainable approach that balances affordability and access. And as importantly, purchasers should establish clear measures of success to determine what combination of drug coverage and wellness programs produces better health outcomes.

Using purchasing power to drive better value

The common thread is smarter purchasing and greater accountability. State and local officials can start by asking about provider performance, analyzing how dollars are spent, and demanding more from health plans and vendors.

That’s why Morgan Health developed the State & Municipal Health Care Purchasing Playbook. This playbook draws on our learnings from large employers to offer practical considerations that can translate to the public sector. Our goal is to help leaders know their options, learn from commercial and other state employee health plans, ask better questions of benefits partners, and make informed purchasing decisions to better support the millions of government workers and families who rely on this coverage.