Direct Contracting For Health Care Services

"I was hoping we could avoid the middleman"Variations on traditional group insurance via insurer-administered self-funding remain the norm for many large employers. But some health systems are considering alternatives in the face of high costs, new regulations and demand for more choice.

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Variations on traditional group insurance via insurer-administered self-funding remain the norm for many large employers. But some health systems are considering alternatives in the face of high costs, new regulations and demand for more choice.

Though fraught with pitfalls and risks, these trends may bode well for health systems trying to find sustainable revenue models — if they can deliver a better value proposition for employers.

One such employer that went seeking and finding that kind of new value is the Jackson Laboratory, a nonprofit genomics research company based in Bar Harbor, Maine.

When Jackson Labs joined the Maine Health Management Coalition in 2008, its HR leaders learned that its costs were 25 percent higher than other employers in the organization.

It turned out that was largely “driven by high costs in the local hospitals,” which were 50 percent higher than the coalition average, said Wayne Gregersen, Jackson Labs’ manager of benefits and compensation, at the Maine Health Management Coalition’s 2014 annual symposium.

“We thought that it wasn’t us that was the problem, but the healthcare facilities,” he said. The company’s employee morbidity incidence was actually more than 10 percent below the coalition average in areas such as cancer, heart disease and respiratory disease.

So, to construct a new network for its Aetna-administered self-funded plan, the company decided to “put it out to bid,” sending an RFP to five local hospitals and asking for their prices on the most prevalent ICD and CPT codes.

St. Joseph Healthcare, a one-hospital provider overshadowed by the giant Eastern Maine Health System, ended up as the winner, agreeing to reimbursement at 14 percent below the average cost of others, Gregersen said.

One challenge in this strategy is that St. Joseph, in Bangor, is “40 miles away from where most workers live.” But it’s not an unreasonable choice for employees, given the lower out-of-pocket costs and the fact that many Mainers have 50-mile or more round-trip commutes to work. For knee and hip replacements, the company went even further, establishing a distinction program with St. Mary’s Hospital, a member of Maine Health, 150 miles away in Lewiston — with 100 percent of the cost of the surgeries, travel, lodging and food covered for workers.

Jackson Labs also has a speciality telemedicine consult program to connect employees with experts at Harvard teaching hospitals, via Partners HealthCare’s Center for Connected Health, and no-cost lab tests through Quest Diagnostics. (Aetna “gets a huge, huge, huge discount to use Quest” that ends up being hundreds of dollars per test less than what the company paid for lab services at local labs, Gregersen said.)

All this has been combined combined with a value-based wellness program, in which employees who complete screenings and healthy activities can lower their premiums and deductibles, such as $300 for a health risk assessment, $500 for a blood panel, and $400 for lifestyle coaching.

The company’s health insurance premiums have stayed flat since 2007, when the the wellness and value-based care journey began, while hospitalizations have decreased by 43 percent and claims above $50,000 have decreased by 50 percent.

“It’s a risk-management program rather than a cost-management program,” Gregersen said. “I think that focus on risk results in better outcomes.”

Contracting alternatives

Other large employers are taking swings at similar strategies, and some health systems have stepped up to the plate.

Some 27,000 Boeing employees and retirees in greater Seattle now have two more choices of networks for comprehensive healthcare under the aviation giant’s “preferred partnership option.”

Swedish Health Services, the region’s largest health system, and Providence Health & Services have launched the Providence-Swedish Health Alliance as one of those options; the other is the UW Medicine Accountable Care Network, from the University of Washington health system.

The Providence-Swedish Alliance is marketing a range of new benefits for Boeing workers, including same-day or next-day appointments for urgent primary care or and acute care, online scheduling for primary care appointments and reviewing test results, and concierge telemedicine. The two health systems are also nurturing a Medicare Shared Savings ACO approved late last year, serving 25,000 beneficiaries in western Washington.

UW Medicine’s ACO, offering primary care medical homes, four medical centers and various network affiliates throughout western Washington, is pitching itself as the advanced, research-based health system, bringing “new approaches to prevention and treatment to the clinics and hospital rooms,” as UW Medicine CEO Paul Ramsey, MD, said in a media release.

Meanwhile, there is another current in employer health benefits that could be both disruptive and opportune: direct primary care contracting with hospital benefit plans.

As the technologist-physician team who co-founded the new self-insurance company Collective Health put it: “we’re building a complete solution to replace your employer health insurance.”

That San Mateo-based startup is largely targeting other technology companies. Others are looking more broadly — like Physician Care Direct, selling what it has termed and trademarked as an “employer health ownership plan,” an outsourcing service for employers “that facilitates purchasing primary care directly from local providers and coordinating additional coverage.”

Physician Care Direct recently inked a deal with NextCare Holdings, the parent company of a multi-state urgent and primary care network, to offer primary care contracting services to small and large self-funded employers in greater Dallas — pitching savings of as much as 30 percent. Physician Care Direct’s platform lets employers buy personalized primary care, as well as specialty and hospital care.

“We’re changing the way people pay for healthcare by offering a free market solution that keeps healthcare dollars and decisions where they belong — between doctors and patients,” said William B.J. Lawson, the co-founder and CEO of Physician Care Direct.