Employers consider direct contracts, sidestepping traditional payers


More employers are interested in exploring direct contracting arrangements with providers, according to healthcare experts.

NATIONAL REPORTS - More employers are interested in exploring direct contracting arrangements with providers, according to healthcare experts. The trend could cause some concern for commercial payers because they would essentially be cut out of the equation.

New survey data released from Oliver Wyman Health & Life Sciences Practice found that nearly 40% of more than 1,300 employers surveyed say they would be interested in contracting directly with provider organizations for a value-based network.

Andrew Webber, president and chief executive officer of the National Business Coalition on Health, says he has seen a willingness among employers to seek out alternate coverage options.


To stay competitive in an environment where employers are doing provider-contracting workarounds, health plans will need to improve their efforts in population health management to better meet the needs of employers.

"The enlightened healthcare plans are thinking about their own relationships-contractual relationships with accountable care organizations or physician practices that have certain infrastructure-and building that into their plan designs that they offer employers," he says.

Webber says failures in the traditional healthcare delivery system have forced employers to focus on prevention and chronic care management themselves by investing in their own health and wellness programs and counseling services.

"Employers have built a whole industry around the gaps in the delivery system, which now might change if the more traditional provider community builds that capacity," he says.

Providers are drawn to direct contracting because it allows them to gain access to the purchaser directly and can eliminate the costs of contracting with a traditional payer.

"They are able to offer some of that back to the employers as a discount," says Jay Sultan, general manager for payment reforms at the TriZetto Group.

Gary Rost, executive director of the Savannah Business Group, a business coalition that purchases healthcare services for 28 self-funded employers, says the coalition has been contracting directly with providers since 1986.

"None of our members use a commercial carrier," he says. "We are truly independent, direct to the providers, so every one of our companies is an independent health plan, and they hire a third-party administrator to handle all the claims and adjudication."

To be successful, Rost believes employer groups need to be located in a small geographic area or represent a sizeable portion of the community's commercial population to gain the necessary clout to negotiate agreements.

Steering beneficiaries toward using in-network providers is also essential, according to Rost, who says the Savannah Business Group has an in-network access rate of 98%.

Webber says employers interested in direct-contracting relationships will be seeking providers that have established a proactive approach to patient management, have fully invested in electronic medical records and have the infrastructure and organizational capacity to manage populations.

"They are looking for providers who are willing to go at-risk," he says.


Sultan says the type of risk a provider assumes drives the arrangement. In bundled payment agreements, providers typically only accept technical risk, but in capitated risk arrangements, providers may be accepting incident risk as well.

"The technical risk is what providers are good at managing, the incident risk is where it's much harder for providers to be successful," Sultan says.

Providers could be opening themselves up to unintended risk in direct contracting agreements, especially if they fail to consider legal issues, administrative requirements or population size. Such risk-management is a core capability for traditional commercial payers.

Sultan says providers might be too quick to dismiss the role of an experienced payer organization when considering whether to enter direct agreements. For example, payers have access to comprehensive claims data that offers a longitudinal view of the patient rarely available to providers.

Providers will also need utilization management tools to be able to successfully manage patient costs. Even so, payers might still be contracted to assist in administrative functions.

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