“It’s not a volume game. This is a free-market game………………….”
By Joanne Wojcic
A handful of self-funded middle-market employers in Oklahoma are finding they can reduce employees’ health benefit costs by contracting directly with select medical providers.
While large employers use their size as leverage to negotiate discounts directly with providers, it is rare for midsize employers to do so because they lack the volume of patients necessary to make it worthwhile for providers, said Dr. Neil Smithline, San Francisco-based director of clinical quality at Mercer L.L.C.
“It is interesting that these small employers would do this,” Dr. Smithline said. “There are administrative costs to do this. If you have 500 employees, how many new arthroscopies are you going to have each year?”
But under contracts that require either paying bundled payments for select surgical procedures or monthly fees per employee for ongoing primary care, employers in Oklahoma are saving 50% to 80% over what they would pay under preferred provider organization discounted rates, said Jim Millaway, a benefits consultant with broker The Holmes Organisation Inc. in Tulsa, Okla., who has negotiated direct contracts for midsize clients in Oklahoma for several years.
“It’s not a volume game. This is a free-market game,” he said.
“It’s bringing price awareness to health care,” said Jay Kempton, president and CEO of Kempton Group Administrators Inc., an Oklahoma City-based third-party administrator whose middle-market clients are all doing “some variation” of direct contracting.
For PennWell Corp., a Tulsa-based publishing company with 550 employees, direct contracting began this year as a result of a billing snafu when moving to a new claims administrator for its self-funded benefit plan.
“We had a rash of problems stemming from transitioning to a new TPA,” said Paul Bernius, vice president of human resources and corporate assets. “Employees were getting dunning notices because their claims weren’t being paid.”
In response, Mr. Millaway called each provider and renegotiated the price of services on behalf of PennWell. In nearly every case, the providers accepted significantly less than their billed amounts.
To secure these deals, Mr. Millaway used a price list derived from past negotiations with select area providers such as the Surgery Center of Oklahoma in Oklahoma City, which posts its prices online.
“We wanted to make ourselves better known to the people who pay their own bills for health care,” such as self-funded employers and employees enrolled in high-deductible health plans, said Dr. Keith Smith, co-founder and managing partner of the Surgery Center of Oklahoma. “We knew our prices were very low and our quality was very good.”
Mr. Millaway also has arranged direct contracts with primary care doctors who supply concierge-style medical services to employer groups for a monthly per employee fee, which he likens to “paying health club dues.” In fact, under one of the direct contracts he negotiated, Mr. Millaway pays just $80 a month for primary medical care for himself and his family.
“By the time an employer has come to us, they have done everything they can possibly do to their plan to contain costs,” said Dr. Kim Hutton, medical director at CareATC, a Tulsa-based provider of primary health care clinics that has contracts with about 90 area employers to provide primary care, wellness and disease management services to their employees.
“ATC” means “at the company,” Dr. Hutton said, adding that her firm does not have any PPO contracts and accepts only cash payments. CareATC also negotiates its own direct contracts with hospitals and specialists to which patients are referred, she added.
“By not being tied to specific hospital systems, we have a little more bargaining power,” Dr. Hutton said.
Direct contracts are a win-win because they ensure that providers are paid fairly and promptly, while also providing significant savings to employers, Mr. Millaway said.
For providers, “we get them out of the collections business,” he said. For employers, “we hold contracts with a number of facilities. We give employers the list of procedures by code, with prices for hospitals A, B and C.”
Some employees have used the list as leverage to negotiate their own discounts.
In addition, Mr. Millaway’s self-funded employer clients retain PPO contracts for employees who are out of the area or do not want to use the contracted providers.
To encourage using the direct contract providers, the employers typically waive any copayments or deductibles and, in some cases, even pick up the tab for travel expenses.
The patient who has traveled the farthest for direct contract medical care was a boy from Jackson Hole, Wyo., who came to the Surgery Center of Oklahoma to have a torn anterior cruciate ligament repaired.
As the employer’s TPA, Kempton Group handled the arrangements from surgery to travel, Holmes’ Mr. Millaway said. With the procedure and travel costing about $8,500, that employer saved $25,500 over the typical PPO rate had the surgery taken place in Jackson Hole, he said.
“We have been pretty bold in doing this, but it’s the right thing to do,” Mr. Kempton said. “It’s very disruptive to the insurance and the TPA world and to the broker world. A lot of people feel threatened if you have educated consumers and you have providers catering to these consumers.”
Editor’s Note: Direct contracting is not complicated. A simple one page Letter of Agreement (190 words) has proven to be an effective and expeditious way to work directly with willing providers who simply want fair, timely and accurate payment for services. Recommended Reading