August 2018, Volume XXXIII, No 5
cover story One
Physician/employer direct contracting
Exploring new potential
Many of these employers have employed the same overarching set of strategies: shop for a new carrier that is willing to lower the administrative costs or underprice the risk, increase the deductible and/or out-of-pocket costs, introduce consumer-driven health plans so employees can “understand the cost of health care,” increase their risk within their plan by raising their own specific stop-loss deductible, and so on.
The issue with many of these strategies is that they do not affect the root cause of increasing health care costs. That is, they focus on “fixed costs,” which only make up 15 to 20 percent of their whole plan costs, and they ignore the actual health conditions that are prevalent in their plan. Additionally, many of these strategies are short-term fixes. They may alleviate or mitigate costs for a short period, but many of these tactics actually lead to higher health care costs in the long run.
There is an alternative. By contracting directly with health care providers in their area, employers may be able to lower their costs while still providing effective coverage to their workers. Many of these models can also benefit health care providers who choose to “go direct” to contract with employers.
Understanding the health care landscape
Oddly, many business owners and administrators are only just beginning to understand a simple explanation for our convoluted and misaligned health care landscape: health care professionals manage health care, while insurance companies manage health plans.
Many employers have been sold on the idea that, through disease management and care management, health plans can manage health risks and health care costs. While the health plans may have their hearts in the right place, more often than not, we see little meaningful engagement with the employees they are trying to reach.
Employers have also been sold on the idea of discounts by their brokers and agents. These discounts were supposed to help compare one health plan’s acuity at provider negotiations over another. While discounts may have had a function at some point, the fact is that these discount claims can be very deceiving.
Leverage is everything when it comes to negotiations. The larger the patient base, the more disruption may be caused by a health system dropping out of a given health plan’s network. Therefore, if you are a “Goliath provider,” your discount arrangement is very different than the independent “David providers” of the world. Ergo, a health plan may state that they have, on average, great discounts, but what they cannot tell employers is the range of discount from one provider to another. Therein lies the key to an employer’s newfound interest in developing direct provider partnerships that bypass the insurance carrier for certain services.
We did not make our employees better
consumers by giving them a high deductible.
Data drives continuous improvement
“Kaizen”—a business model that, according to Six Sigma, aims to eliminate waste in all systems of an organization through improving standardized activities and processes—may shed some light on this challenge. Most employers have considered the idea of eliminating waste and improving efficiency in their medical plan as out of reach. They simply did not have enough data or clarity to develop even the most rudimentary risk management programs for employee health.
That changed as consultants introduced “Big Data.” Data analytic companies download claims data from the health plans with granularity and report back aggregate finds in a HIPAA-compliant manner.
What many are seeing from this analysis is that we did not make our employees better consumers by giving them a high deductible. At best, the employer shifted costs to the employee. At worst, they may have created their next batch of catastrophic health cases. It turns out that, as individuals, we did not want to pay for care or prescriptions, so many people simply stopped going to the doctor or skipped their prescriptions.
Further, employers are beginning to see their disease burden as they track patterns of utilization (where people are going and for what types of services) and the costs for specific care episodes, such as joint replacements or colonoscopies.
By applying Kaizen techniques to their health plans, employers are also beginning to entertain the idea that going direct to providers for health care has its advantages.
Collaboration drives change
Very large national employers such as Amazon, Berkshire Hathaway, and JPMorgan Chase are overhauling their strategy to be more inclusive of medical providers and develop alternative financing. In Minnesota, we also have a handful of early adopters that have been contracting directly with small and midsized independent providers for many different types of care.
These models include:
Onsite healthcare. We are seeing employers bringing health care to the worksite, building onsite clinics, and inviting in local practice providers to deliver care for a fixed annual cost. To make care more efficient, these onsite clinics also provide lab services and dispense medications.
Employers have also introduced other services alongside primary care, such as mental health services and physical and occupational therapy. These services take the place of the traditional fee-for-service benefit for those with access, and leave the health plan in place for those without access. By doing so these employers gain multiple advantages. They keep their employees healthy and engaged, keep them at work rather than leaving to get care, and, in the case of physical therapy (PT) or occupational therapy (OT), see reductions in workers compensation claims. Offering PT onsite means that employees do not need to use paid time off (PTO) or their own money to get care, diminishing the need for the employee to embellish where and how an injury occurred. In either event, the care is free and they are not missing work, so they can be more honest than if their paycheck and checking account were at risk with a high deductible.
Near-site partnerships. Where onsite clinics do not make sense for logistical reasons (it’s tough to invite spouses and kids into a foundry, for example), we see employers reaching out to local independent practice groups that, on average, offer lower costs than larger systems. The companies—in many cases, small and midsized self-insured employers—develop mutual behavioral economic strategies to guide employees and families to these independent practices. In return, these health care practices develop greater engagement through outreach and additional services to track and report health improvements back to the employer (again, in a HIPAA-compliant manner).
Direct primary care and bundled pricing. Providers are responding by considering and implementing new financial arrangements with employers, such as direct primary care and bundled programs.
By, in essence, capitating the cost of primary care into a per-employee, per-month cost, the provider gains cash flow and reduces the write-offs. The employer, assuming they can shift care to this provider with lower copayments or waiving the deductible, gains stability in the health plan financing. Since health claims are volatile based on the volume of care at any given time, entering into a fixed cost to reduce that volatility has its advantages.
Employers that employ this strategy see increased health care utilization while having lower health care costs.
Bundled care programs are also gaining steam with employers. With the proper set of data and the right consulting support, employers can see the extreme variability in costs for identical services. If we look at the episode cost for a colonoscopy, we need to consider the cost for the gastroenterologist, anesthesiologist, and pathologist (if needed), as well as the cost of the facility charge. Once all are grouped together for a single date of service, the cost range may be as great as 400 percent, depending on the provider and the location of the facility. By negotiating with a single provider a reasonable price for an “all-in” charge that will not deviate, the employer reduces both the volatility in claims cost and the risk that the employee will make an uneducated decision to go to the most expensive location and provider.
Centers of excellence, private networks, and value-based benefits. Employers are developing their own “centers of excellence” and tailored private networks based on both quality of care and total cost of care. By guiding their population to the right provider at the right price, with the best possible outcome, employers that employ this strategy see increased health care utilization while having lower health care costs.
Further, they are enticing employees to participate and engage with the providers by implementing “value-based benefits.” To engage their population with certain conditions like diabetes, chronic obstructive pulmonary disease (COPD), or heart conditions with low cost/no cost supplies and medication, they see employees re-engage with the chosen provider and come back into compliance with evidenced-based care guidelines. With this newfound health compliance, the employer sees reduced health care risk, which, over both the short and long term, creates lower health care costs.
The impact to the employer
Upon reviewing the claims data for utilization, health scores, and total costs, we see these companies winning the battle against rapidly increasing health plan costs.
For two employers with onsite clinics, a robust well-being platform, onsite PT, value-based benefits, alternative home care, and near-site clinic arrangements, the cost avoidance of actual claims against trend over a 10-year period has been in the range of $4 million to $7 million.
Other employers that have engaged with a local independent primary care provider to help them manage the health of their population have seen lower costs savings—approximately 3 to 5 percent over a three-year period—but they have purchased as much as 55 percent more office visits over the same period.
For all of these employers that have scuttled the conventional strategies in favor of rebuilding the health of the population, the ultimate payoff is in healthier, more engaged, and more productive employees, as each of these studies show a radical reduction in voluntary turnover and improved profitability.
The impact to the provider
What has been seen as the curse of independent providers may turn out to be their best sales pitch. If you are an independent provider, you likely suffer from what I termed the “David syndrome,” meaning that you get paid a fraction of what large “Goliath” systems are paid to provide the same services and, often, the same health outcomes.
Direct employer contracting allows you to use this to your advantage. Your local employer would very much like to understand what they are paying for and how they can lower their costs (and if you can offer great outcomes and a better patient experience, you have checked off all three needs for an employer).
For those employers offering value-based benefits or waiving copayments and deductibles if employees use you, there is a very nice ripple effect: You are getting paid 100 percent of your fee from the employer and do not have to chase down employees/patients for late fees, which reduces your write-offs.
The options discussed in this article are merely options, not legal advice. There is no “one size fits all” solution. Each plan is unique, so employers should work with their insurance broker to set up a program that fits their needs. For independent health care providers, these models may offer an attractive alternative. Should you have questions regarding this model or are in need of further information, please contact our offices at 952-945-0200.
Mick Hannafin is a consultant at Associated Benefits and Risk Consulting.
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