Employers cut out insurers to control healthcare costs
Last week, Boeing announced it would contract directly with California-based MemorialCare Health System to provide health benefits to its employees in southern California. “We’re really after improving quality, improving the member experience and controlling cost,” Jeff White, Boeing’s director of healthcare strategy, told the Los Angeles Times.
Although services will not begin until Jan. 1, 2017, MemorialCare Health Alliance’s Accountable Care Organization (ACO) health plan option will be added to Boeing's open enrollment this fall.
This is the first direct contracting agreement between a healthcare system and an employer in California. Under the contract, employees will have access to around 2,400 clinicians at nine hospitals and 71 outpatient facilities (e.g., clinics, surgery centers, urgent care facilities). Employees who choose this option will be offered added benefits, including smaller paycheck deductions for healthcare coverage, no copays for in-network primary care office visits, 100% coverage for generic prescription drugs and freedom to choose in-network specialists without a referral.
Is direct contracting becoming a trend?
Boeing also has direct contracting agreements with ACOs in Seattle, St. Louis and Charleston, SC. And it’s not the only major company to cut out insurers by contracting directly with providers.
Intel Corp. has entered into a direct contract with Presbyterian Healthcare Services, a health system in New Mexico.
Walmart and Lowes have negotiated bundled payments for certain surgeries at major hospitals across the US, at no cost to employees.
Janet Coffman, associate professor of health policy at UC San Francisco, told The Los Angeles Times these types of arrangements could become more common as companies struggle to control rising healthcare costs. “As providers get more experience with being part of Accountable Care Organizations and managing risk in the sense of setting fees for the employer at levels they think can cover their costs, more of them are going to be interested,” Coffman said.
According to Jeff Hoffman, senior partner at management consulting firm Kurt Salmon’s Health Care Group, there are five industry factors impacting direct contracting decisions:
- An increase in the number of regional health systems;
- Narrow network participation;
- Bundled payment preparation;
- Risk adoption; and
- Existing direct contracting relationships between small organizations with specific physician groups or geographies and employers..
Opportunities for payers
Hoffman says that insurers, especially larger payers, are well positioned to manage direct contracting relations. “While slightly more difficult for smaller insurance companies with limited bandwidth, insurers are usually better equipped than employers to manage a direct contracting arrangement,” he says.
Payers can also play a role in direct contracting arrangements by serving as third-party administrators. “Very few employers have the infrastructure in place to respond to a claim, send out bills or adjudicate a claim,” says Hoffman.
Direct contracting could be a cost saver for large integrated healthcare delivery systems. However, it probably wouldn’t work for small community hospitals unless they partner with other healthcare providers to develop larger networks.