Hospitals must be careful about direct contracting

More hospitals are contracting directly with large employer groups to deliver healthcare services, but the challenge of executing such an arrangement is formidable.

Direct contracting has become more attractive in recent years to try and keep healthcare costs in check for employees. Jackson Laboratory, a genomic research company based in Maine, was able to use direct contracting with providers in the region to freeze healthcare costs at 2007 levels, drastically reduce hospitalizations and cut in half the number of high-cost procedures clinicians perform.

Bypassing an insurer in such a transaction may not actually be the best way to proceed, according to Hospitals & Health Networks. In one example of direct contracting, Wisconsin's Aurora Health Care has been able to sell accountable care organization products to 275 employer groups. However, its claim that it can reduce their costs 10 percent during the first year could not have been fulfilled without a payer reviewing claims data, according to the post.

Many employers are seeking direct contract arrangements with providers because they are weary of continuously rising costs. Those hospitals and healthcare systems that provide direct contracting must therefore be able to prove their value to potential clients.

Partly due to the enormous undertaking direct contracting represents, some providers are only doing it for certain specialty procedures. HHN points to the Pacific Business Group on Health, which created the Employers Centers for Excellence Network to focus specifically on direct contracting of knee- and hip-replacement surgeries.

In one of the most high-profile examples of such an arrangement, Wal-Mart began sending its employees to the Cleveland Clinic to save money on both spinal and cardiac procedures.

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