Ditching PPOs for direct contracting

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Benefits adviser Jeffrey Fox has some harsh things to say preferred provider networks.

“The concept that an employer will steer their member’s medical services to a particular provider(s) in exchange for greater discounts is sound,” Fox writes in his book, Breaking Through the Status Quo: How innovative companies are changing the benefits game to help their employees and boost their bottom line. “Successful ‘preferred seller’ arrangements exist in many forms in our economy, but not in healthcare.”

So Fox, a principal and the benefits practice leader at HJ Spier in Indianapolis, Ind., is ditching PPOs in favor of direct provider contracts for his employer clients. He pairs this with self-funding to achieve substantial cost reductions over their previous preferred provider discounts, and in some cases, he helps clients band together to enter direct contracts as an employer coalition.

Fox’s partner in these undertakings is Gary Everling, the executive director for business development at Hendricks Regional Health in Hendricks County, Ind., and the Hendricks County Government and the Town of Plainfield, Ind., were his first direct contract clients.

The adviser opted to work with HRH after comparing its charges for a variety of standard procedures with the benchmarks provided by Centers for Medicare & Medicaid Services and those from several other providers in the Indianapolis area. “These were the providers that a Hendricks County claimant would likely choose for their medical care,” Fox explains. When he compared each provider’s charges against the average for all providers, HRH’s were 35% below the average, while many of the others were 30% higher.

High grades for care

There were other considerations as well. These included HRH’s 300 physician medical group, which received a five-star CMS rating and an ‘A’ grade from Leapfrog—a survey site that rates hospitals on safety and care quality.

“We have also earned Healthgrades’ highest award for 11 straight years, making us one of 14 hospitals in the country to have earned that distinction,” Everling adds proudly. “And we are the lowest priced healthcare system in central Indiana.”

To help his clients set pricing levels, Fox has introduced them to the practice of reference-based reimbursement.

“Employers dislike the idea of basing their reimbursement on a discount off an unknown value, which only will be revealed weeks after the procedure is performed,” Fox says. “A common-sense person knows the cost of a service before it is performed.”

While RBP is a fairly new concept in healthcare, Fox says getting HRH on board was relatively easy. “It wasn’t a matter of bankrupting the hospital, but rather showing good faith in their reimbursement program,” he says. “RBP utilizes recognized industry sources, such as Medicare reimbursement rates, as its reference benchmark.”

And because HRH was already the provider of choice within Hendricks County, the transition was also easy for clients that had been making use of other providers.

“We explained that for those opting for the direct contract network would need to utilize HRH or suffer out-of-network charges,” Fox says. “This applied to any procedure that was available through HRH.”

Employees have taken to the new arrangement as well. In 2013 and 2014—before the direct contracting agreement was in place—Hendricks County Government employees members used HRH facilities 37.2% of the time relative to other providers. In 2015, after the agreement was in force, they utilized HRH facilities 56.1% of the time.

And since then, HRH utilization and HRH network membership has continued to climb. “Enrollment in the HRH network plan is increasing each year, leading to greater usage of HRH facilities, leading to lower relative costs for Hendricks County plan members,” notes Fox.

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