More employers go direct to providers, sidestepping payers
Employers have been trying to figure out healthcare since the days of the Model T.
Henry Ford opened his namesake hospital in 1915 with hopes of improving the quality of healthcare for his employees. More than 100 years later, employers are still faced with rising healthcare costs and concerns about quality. Employers expect healthcare costs will increase 5.5% this year after a 4.6% increase last year. Willis Towers Watson’s 22nd annual Best Practices in Health Care Employer Survey said employees are stepping up cost management strategies in response.
Some large employers are even sidestepping health insurers and contracting directly with providers. Another recent Willis Towers Watson survey found that only 6% of employers contract directly with providers now, but 22% are considering it for 2019.
Big names like Walmart are already giving the tactic a try, and employee healthcare is also the focus of the newly announced joint venture between Amazon, J.P. Morgan and Berkshire Hathaway.
The culprits for the renewed interest are multiple, including frustration with the cost savings extracted by payers, pharmacy benefit managers and consultants. Another factor is provider consolidation that limited competition in many markets.
With fewer choices to get affordable, high-quality care, employers have decided to work directly with providers, Suzanne Delbanco, executive director of Catalyst for Payment Reform (CPR), a nonprofit that works with more than 30 employers and purchasers of healthcare, told Healthcare Dive.
“The interest in direct contracting is not a coincidence. It’s one of the few strategies that employers can use,” Delbanco said.
The three common kinds of direct relationships between employers and providers include:
- Accountable care organizations (ACOs) for an entire employee population
- A bundled payment, carve-out or Centers of Excellence (COE) for a defined condition
- An advocacy role, such as meeting with hospital leaders to advocate for quality initiatives or payment reforms
Beyond potential benefits for employers, providers may be interested in these kinds of contracts for other reasons. For instance, providers can test a different care delivery or payment model when they carve out patients from an employer. They’re able to experiment without putting a large portion of their business at risk.
Also, there’s a prestige factor of a provider saying they have a direct relationship with a well-known employer.
There are also potential downsides for both providers and business. Patient-employees might not like being restricted to get care at a certain facility. An employer might see worker pushback during such a change and will need to educate staff about the relationship.
Americans usually don’t like their choices restricted, but Delbanco has increasingly seen that people are willing to make a trade-off if it means more affordable healthcare.
“Most of the time when given a health insurance product or provider that is less expensive and they get some sense that quality is not any worse, Americans are increasingly opting for that,” Delbanco said.
Employers turn to COE and ACOs
David Lansky, CEO of San Francisco-based healthcare purchaser Pacific Business Group on Health (PBGH), told Healthcare Dive his members have found success with COE and direct ACO contracting.
The group's travel surgery program, Employers Centers of Excellence Network, has complication rates well below community norms, for example. Getting care through the network doesn't cost most employees anything, and the total cost of care to the company is below PPO levels.
Lansky credited a low incidence of inappropriate procedures, complications and repeat surgeries.
Walmart has a Center of Excellence Network that seeks to reduce unnecessary spinal surgeries. The company estimates that 30% of spine procedures are unnecessary, so the company contracts with 12 high-quality centers around the U.S., including Mayo Clinic, Mercy Hospital Springfield in Missouri, Virginia Mason Medical Center in Washington and Geisinger Medical Center in Pennsylvania, to offer spine surgeries.
Walmart, the biggest private U.S. employer, incentivizes specialists to provide appropriate treatment through bundled payments in a value-based payment program. This allows Walmart to have a greater influence on costs. Physicians assess the patient to determine whether a less invasive way is a better course of action, such as injections or physical therapy.
Walmart covers 100% of procedures, travel to the facilities (including airfare), lodging and expenses at those facilities for the patient and caregiver. Also, starting this year, employees who decide to get surgery outside of a COE facility will have to pay out-of-network costs. Sally Welborn, senior vice president of global benefits at Walmart, said the changes will “make sure that our associates and their family members are diagnosed correctly and that they get the best possible treatment.”
For ACOs, Lansky said members have achieved “significant quality improvements, better patient experience and access and modest cost savings.”
One example of an employer-contracted ACO is Boeing’s work with MemorialCare in Southern California. Boeing’s 15,000 employees and 22,000 dependents in California are covered through an exclusive partnership with MemorialCare and under the value-based MemorialCare Health Alliance ACO.
The contract gives Boeing employees who choose the ACO lower premiums, no copays for in-network primary care visits, 100% coverage of generic drugs and the ability to choose specialists within the network without a referral.
Beyond COE and ACOs, employers are working with providers to offer on-site or near-site employee clinics. Willis Watson Towers’ recent large employer survey found 20% of employers say they have onsite employee clinics now, but 34% are considering it for 2019. Eight percent of employers say they have near-site or multi-employer health clinics, but 26% are considering for next year.
This spring, Apple is planning to open two primary care clinics for its employees at the company's headquarters in Santa Clara County, California. Lots of employers will likely watch how Apple fares, and could follow suit if the move looks successful.
Delbanco said the clinics ensure that a provider is adhering to guidelines, controlling referrals to only high-value providers and facilities and keeping primary care at the center of healthcare. Employers may also contract with a telehealth company to provide services for nights and weekends when the clinics aren't open.
Though there are successes, there have been issues with direct contracting along the way. Lansky said his organization found that one mistake is when a contract picks a quality measure with a small payment incentive.
To achieve the improvements needed, providers need to re-engineer the care process, fully engage a team of clinicians and managers, optimize the supply chain and focus on meeting patient and purchaser needs across the continuum.
“That won’t happen when one employer, no matter how big, offers a modest incentive in terms of dollars or patient volume,” Lansky said.
PBGH has also learned that it’s tough to get meaningful change in highly concentrated markets. Providers operating monopolies won’t make much of an effort to respond to employer requests to improve cost efficiency or quality transparency, he said.
And it's still an open question as to whether these initiatives can actually bend the cost curve.
Bill Copeland, leader of Deloitte’s Life Sciences and Health Care practice, told Healthcare Dive that employers — even when coming together and buying in bulk — can only do so much. Copeland said direct contracts with providers don’t confront the underlying problems that drive healthcare costs: a fee-for-service system and the expense of caring for the chronically ill.
If they’re to make a dent, employers will need to focus on chronic care, which makes up the bulk of healthcare dollars. A recent RAND study found that 60% of American adults live with at least one chronic condition, and 42% have more than one chronic illness. That’s costing billions in healthcare spending annually. RAND estimates that people living with five or more chronic conditions make up 12% of the U.S. adult population, but account for more than 40% of health spending.
To make a differences, employers should focus on chronic illness, moving away from FFS to bundled payments that reward providers for value, offer virtual and home-based care and perhaps help patients with transportation and housing.
How providers should prepare
Erin Tatar, national leader for Willis Towers Watson’s health management practice, told Healthcare Dive that some providers are willing to take on financial deals to get the volume needed. They might be ready to take on the risk and manage population health with the understanding that they will fill more beds and get more traffic if they partner with employers.
Lansky said hospitals interested in working directly with employers should develop the capacity to offer bundled or population-based contracts that bring meaningful improvements in workflow, patient experience and transparent outcomes.
“We need the employer and payer community to recognize that excellence is possible and available, and then it’s our responsibility to reward providers who are ready to deliver,” Lansky said.
However, one mistake providers sometimes make is overpromising. Tatar pointed to those claiming lofty goals in efficiency and care coordination. When they can’t meet those targets, they take on more financial risk, he said.
Tatar suggested instead that providers look at their data and objectively review the health system. For instance, when listing “high-quality” facilities and providers, health systems shouldn't mark all of them as “above average.” Some surgeons and facilities are better than others when it comes to procedures. Tatar said health systems need to be objective in figuring out quality facilities and providers for specific procedures.
What does this mean for payers?
The growing desire of employers to bypass payers shows dissatisfaction with health plans, Delbanco said.
Payers aren't providing the patient experience, quality and cost containment expected by employers, so they are looking to do it themselves. Delbanco said the movement should motivate large payers to provide more customization for employers.
Lansky added that payers should respond to more direct contracting between employers and providers by supporting “high-quality, efficient, patient-centered care.” That includes increasing transparency, such as the accurate cost of care data by condition, treatment and provider, as well as standardized outcome measures.
“We’d be thrilled if our plans came to us with standardized, comparable data on total cost of care and health outcomes for important conditions and worked with us to steer patients to the high performers,” Lansky said.
That said, even if employers contract directly with providers, there’s still a place for payers. Nearly all employers will need help processing payments and claims, answering phones, providing care management, helping employees through the health insurance process and performing other administrative duties usually connected with payers.
- Houston Chronicle Walmart steps up and into the health care fray
- Willis Towers Watson Best Practices in Health Care Employer Survey Report