Last fall, the announcement that Walmart employees could go directly to top medical centers like the Mayo Clinic in Rochester, Minn., and Cleveland Clinic in Ohio for surgeries made national headlines and insurance industry leaders' heads turn. Cyndy Nayer, value-based design consultant, says she thinks more employers will begin to make similar agreements directly with hospitals and hospital groups, circumventing insurers in the process. "It's the first of many, and there will be more," she says of the Walmart contracts.
While insurers may be left in the dust with this model, the broker and consultant certainly should not be. "Now we're starting to see very cool broker maneuvers where they're finding the right [hospital] network locally and finding smaller companies to buy into that network," Nayer says.
Bob Harnett, vice president at Silberstein Insurance Group in Laurel, Md., is one of those brokers starting to offer this solution to employers. "I think it's the logical next step and is an extension of what we saw six or seven years ago when some employers were looking at medical tourism; they'd pay for a member to have their services overseas because even paying to travel was still cheaper," he says. "To me, this makes perfect sense to essentially bring that philosophy back home where quality can be more controlled. This works especially for preventative screenings or more elective surgical procedures."
Harnett is quick to say that a key in direct-to-provider plan design is that it's not mandatory, so that employees still have the feasibility to go elsewhere for a service, if they so choose. But usually, he says the plan design will be written that if they do choose the employer-selected facility, it will be free with no co-pay or additional costs due to the savings of the contract. He also says he has a medical director to engage for recommendations about "which local facilities are better than others," to address quality.
'Emerging trend'
Harnett, a member of Benefit Advisors Network, calls this an emerging trend and says just a few others in the network are starting to offer this solution in plan design to clients. "The more sophisticated and more consultative brokers are always looking for another tool in the toolbox. ... It's not the end solution to the cost issue, but something else brokers can bring to help them bend trend," he says.
Nayer emphasizes quality, and says these decisions should not be solely based on price. "When you're promising to send all your colonoscopies to X-Y-Z surgical center, of course it's going to be cheaper, but you don't know they're better," she says. "You have to look at quality indicators in these direct contracts."
Nayer says there are a few companies that are at the forefront of quality innovation in the health care industry. One of them is Action Cue Clinical Intelligence, founded by Don Jarrell and owned by Prista Corp in Austin, Texas. "It's an application online that addresses quality management, risk management and quality improvement all together," Jarrell explains. "People who oversee these things in a hospital where we're installed can get out of the mechanics because the technology directly services them."
Jarrell's tool, which EBA saw first-hand via online tutorial, lays out real-time incidents as they occur in a portal that identifies the various hospital departments as green, yellow or red. Hospital management personnel log in and view the incident risk by department. The technology is in 70 facilities so far.
"Prior to implementing our software, one hospital investigated three to four adverse incidents per month," Jarrell says. "After our software, they were implementing over 100 investigations per month and the amount of time looking into a given incident when from 34 days down to four days."
Jarrell says brokers will be interested in the dashboard overview described above, because it summarizes the weaknesses and vulnerabilities flagged by the program.
Brokers should begin to look for software like this that's rolling out when determining potential hospital networks for their clients to directly partner with, Nayer says. "The employer will need to own that contract and that responsibility," she adds.
Steve Rasnick, broker and president of Self Insured Plans LLC in Naples, Fla., is cautious about the size of employers that will be able to go directly to hospitals. "If you have a relatively large employer in a given area where you represent a large percentage of employment, you're in a position to negotiate what I call favored-nation pricing," he says. "But if you're a 50 or 100-life employer in a major metropolitan area, that's pretty hard to do. It's more the rural strategy where you're the 800-pound gorilla in an area and have clout."
What Rasnick proposes for those smaller clients is another value-based alternative for brokers: allowing plan participants to opt out of their PPO network into a Medicare referenced-based reimbursement, or PPOX. An employee who opts for PPOX can do so at any age and during open enrollment for all payments during a year. "You have exactly the same benefits as PPO except your contributions are 30% to 40% less because of Medicare," Rasnick says. "Medicare is the lowest common denominator of the best pricing in the country. And the pricing is the most consistent and transparent that's out there."
His company sells this product to brokers, which they then take to clients. Rasnick says generally 60% of groups stick with the PPO in the first year, while 40% choose the PPOX. "Then, in years two and three, it gets closer to 50/50," he says. "If you think about it, we've seen a movement in plan design to high deductible plans. If an employee has an HSA, they're spending their own money anyway, so why wouldn't they want to pay less of their own money?"
Harnett agrees with Rasnick that the smaller employers may find direct-to-provider agreements challenging, but there are other ways around it. "We might see brokers taking two or three 100-life employers and bringing them together to do a similar thing as long as they're geographically located nearby," he says.
Right now, direct-to-provider contracts are really only fruitful for employers with 250 employees and 500 covered lives including dependents. "But more these things grow, then the farther down market they can go," he adds.
