Industry Voices—Direct contracting with providers: An opportunity for forward-thinking employers

It may seem too good to be true to have an affordable health benefits plan that actually contains cost and improves outcomes and experience for employees. While it is possible, it requires a slight shift in thinking, and leaning into and embracing a new model of managing health benefits.

Direct-to-employer contracting is a promising model with the potential to make healthcare work better. But employers must step up and innovate alongside providers, not against them.

A better way can exist in managing healthcare that benefits patients, employers and providers alike while still meeting the demands of cost reduction and quality improvement.

Of course, 2020 will be considered an outlier year on many levels and healthcare costs are no exception. But if we look to 2019, we get a good snapshot and sense of a frightening inflationary trend that has been building over the last two decades.

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The Consumer Price Index for healthcare insurance rose 10.7% in 12 months as opposed to 2.3% for medical services and 2% for overall inflation for the same time period. Additionally, healthcare spending grew by 4.6%, representing almost 18% share of GDP.

The situation around managing employee benefits is dire as well. Rising costs year over year have forced employers to push creative benefit configurations to their breaking point. Traditional carriers are recording record profits while premiums are rising 4% annually—double that of inflation—continuing to outpace wage increases. How much higher can deductibles, cost shares, copays, etc. go?

Combining the economic pressures of healthcare facing individuals and employers with the traditional and worn-out options left in the toolbox, it’s no wonder frustration with the system is at an all-time high. These numbers are simply unsustainable.

It’s simple to understand why costs continue to rise in a dysfunctional healthcare system; we’ve designed it that way. Providers are incentivized to perform more procedures without regard for customer outcomes that have little connection to the payment of the procedures.

Only in healthcare does this happen. Most market-driven systems are priced partly on the cost of the individual parts but not in absence or disregard to a good and desirable outcome. A mechanic could never get paid for the car parts used if the car doesn’t drive. An airline couldn’t sell tickets if it never got passengers to their desired destination. So why are physicians getting paid based on the numbers of tests performed, the number of questions asked, and the number of appointments booked without regard to health outcomes of patients?

Consumers pay for network exclusivity in almost every industry sector except in healthcare. Costco charges annual membership fees for exclusive rights to shop in only their stores where consumers get curated and vetted items of value at a discounted price. Airlines and hotels offer exclusive memberships based on loyalty and reward members with points and VIP access to seats or rooms with perks. Credit card companies and banks do it, Amazon Prime does it and even television networks are doing it.

Too many employers buy either restricted, narrow network products (EPOs) or broad “go anywhere” bundles (PPOs) and expect it to be a great experience, but these two extremes usually don’t end up benefiting employees. Like a modern-day version of the Goldilocks fairytale, they find that the options are either too narrow in creating access options or too broad in challenging choice and performance, none are “just right.” It’s an illusion of choice, and we need to be smarter and more strategic in the packages being offered to employees.

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Care should be centered around the place that it is received—at the provider—not by how it is paid for, around insurance companies. Unfortunately, the system has been designed this way, with misaligned incentives and hospitals at the mercy of the rate negotiation table. Every industry outside of healthcare operates under the assumption that customer loyalty is king and that repeat customers are a desirable result of offering a great product and great service. In healthcare, customer loyalty is built around trust and that trust lies with the provider.

The prevalence of narrow network products has given any alternative to a broad PPO a bad name. Taking a thin, horizontal slice of the provider quality curve from left to right is not the same as taking a wide, vertical slice of the far-left side of the same curve. A deliberate and thoughtful approach to network design based on access to quality of providers is what is meant by the term “proprietary network.” The shift in thinking through such an innovative network design with meaningful navigation can have a profoundly different impact on outcomes over the performance of both the narrowest and broadest of networks.

Additionally, outcomes and cost must be measured across the episodes of care, not by comprising the bigger picture with a focus on just unit costs. How members are managed through the system—with a relentless focus on navigation and member experience rather than exclusively on rate negotiation and unit cost—can make a huge difference and impact on total cost of care and outcomes.

Employers should think about how to start innovating in terms of what they can offer, while hospitals should design proprietary networks in partnership with exclusively high-quality healthcare providers, making the healthcare process as easy as possible for employers and employees. This would include working with their healthcare partners to research the best and most affordable providers in their region and directing employees to those providers.

Simply narrowing the scope of great providers isn’t enough to move the needle on improving outcomes. However, the shifting the conversation of how providers are compensated needs to be intrinsically linked to how members seek care and how they are meaningfully guided to actually reach that care. A value-based system purpose-built with navigation in mind has the best chance at reducing cost and improving outcomes without sacrificing a great member experience.  

The interest of the patient can’t be lost in designing in a new way of delivering care. All stakeholders need to have an equal seat at the table if any newly designed system has a chance of reducing costs, improving quality and experience for patients.   

For direct-to-employer healthcare to work, forward-thinking employers and health systems have a real opportunity to collaborate on innovative models of contracting that can reduce the total cost of care and simultaneously deliver a superb patient experience leading to improved health outcomes.

Jaja Okigwe is CEO of First Choice Health, a provider-owned health care organization headquartered in Seattle.