Some large employers look to direct contracting with doctors

They believe they can save money and get better quality by negotiating benefits directly without a middleman from an insurance company.

By — Posted May 23, 2012

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Health benefits industry insiders say the combination of upheaval in health care because of reform and continual increases in the cost of coverage are prompting more self-insured employers to consider direct contracting. They save the fees they pay plans to put together networks and handle claims and, in some cases, pass the savings along to doctors.

Industry experts said that if doctors want to take advantage of the direct contracting trend, they should have data that demonstrate their high-quality and low-cost care and be ready to tell employers why their practices should be part of their network.

In many cases, however, physicians are prohibited from approaching employers themselves under their own contracts with health plans, said A.J. Lester, a Houston-based consultant who helps employers build directly contracted networks. He said physicians should be prepared to have an employer approach them and be ready to make a case for inclusion in an employer’s network, which is likely to be far more narrow in scope than the networks that health plans put together on companies’ behalf.

Roger Merrill, MD, is chief medical officer at chicken processor Perdue Farms, which has been contracting directly with physicians and hospitals for more than 10 years. Now it has about 15,000 contracts that cover care for 30,000 employees and dependents. Dr. Merrill, an internist by training, said direct contracting has improved Perdue employees’ health, brought better pay to primary care physicians and saved the company money, all without a health plan’s involvement, he said.

“We at Perdue and the patient and provider all have the same goal: We all want to maximize the health of the patient. Typically, large insurance companies do not have that same goal,” he said.

Though there is no official count of the number of employers engaged in direct contracting, people in the industry say interest is growing. Employers’ direct contracts vary in scale. For some large employers, such as Lowe’s, the home improvement chain, direct contracting has created a niche side benefit for employees. Lowe’s reached a deal that allows employees and their dependents to be transported to Cleveland Clinic for heart surgery at no out-of-pocket cost.

Some employers, like Toyota, are creating optional narrow or “high-performance” networks made up of physicians and hospitals with high clinical quality scores and low prices. Other employers, like Perdue, are creating entire networks, including primary care, specialty care and hospital care for their employees, using a third-party administrator just to adjudicate and pay claims.

“I do think there’s an appetite in the current marketplace for moving toward more narrow and high-performance networks,” said Andrew Webber, president and CEO of the National Business Coalition on Health. “It’s not the same as when we had the managed care wars in the mid-1980s. Rather than a [network in which] you just signed up a lot of doctors with cheap prices, now we truly have better measurement systems so that we’re first looking at the quality of care.”

Among the reasons Perdue chose direct contracting was the company’s belief that primary care physicians should not be at the bottom of what Dr. Merrill called the medical network “food chain.” Perdue pays primary care doctors well, he said, and that’s intentional. When he meets with contracted primary care doctors, Dr. Merrill asks who their best payer is. If it’s not Perdue, he tries to remedy that.

“We want them to smile when one of our employees come through the office,” Dr. Merrill said.

Sometimes direct contracts won’t pay better, Lester said, “but at least there’s the opportunity for give-and-take. The reality of having a managed care middleman is that the buyer and seller never talk directly to each other.”

Direct contracting advocates are among those who acknowledge that physicians’ willingness, or lack thereof, to participate will not make much of a difference in practice traffic, especially compared with the number of patients they get through a health plan. However, the advocates say it could be a worthwhile exercise for physicians interested in new payment arrangements and could set them up for being first on employers’ minds as more set up direct contracting.

“Even in medical communities dominated by the local PPO network or national networks that are out there, it still behooves physicians [and] large and small medical groups to be willing to engage in direct arrangements,” Lester said. “You’re sending out a message by contracting with local employers that you’re willing to do this sort of thing so when larger employers start to think about it they’ll know you’re one of the people they can go to.”

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