How direct contracting can succeed where high deductible health plans fail

Self-insured employers are in a constant battle to reduce health care costs, improve quality of care and help plan participants make informed decisions. In recent years, high deductible health plans have been a logical choice for employers seeking relief from rapid cost increases. But as businesses see the disadvantages of HDHPs play out in real time, many are searching for other solutions. Direct contracting is an effective alternative.

While HDHPs may succeed in reducing health care claims, that success may be fleeting, as it often comes at a medium- and long-term costs. Employees or dependents often try to avoid high out-of-pocket costs by delaying or declining necessary care, which reduces immediate spending but leads to higher health care costs later when delayed care leads to worsened conditions that become more expensive to treat. Also, HDHPs offer no incentives for health providers to improve care coordination or quality, or for employees to maintain their health through regular check-ups and management of chronic conditions. In general, employee satisfaction with high-deductible plans is lower than with other health plans.

Related: High-deductible health plans are popular but costly to patients

As more hospitals and facilities merge into integrated health systems, an alternative health plan model called direct contracting is demonstrating that it can both manage cost and improve the quality of care.

A new option for employers and providers

Direct contracting is a strategy in which self-funded businesses partner directly with integrated health systems for health plan services that have a visible impact on cost, quality and employee satisfaction. Direct contracting arrangements guide all or most of the employees’ care to the directly contracted system(s) and its affiliated providers. In exchange for that commitment and the captive patient volume it provides, the health system(s) delivers coordinated care at a competitive price.

Further, direct contracts with integrated health systems often incorporate performance goals associated with quality and financial metrics, including targets for patient satisfaction, access to care, cost, and outcomes. Again, these are steps health systems are willing to take, believing they can deliver highly efficient, quality care in exchange for dedicated patient volumes as a narrower, ACO-like network.

In these ways, direct contracting removes the inefficiencies and high costs associated with fragmented care and redundant care, helping employers achieve their goals of lower costs and better outcomes. And the savings for employer groups can be significant. Employers can expect annual savings of between 10% and 20% on average over a fragmented PPO health plan.

Going direct

Direct-to-employer contracts can be challenging to set up and administer, and employers and health systems often need help with making and supporting their direct deals. Experienced third-party administrators (TPAs) often fill the gap by providing the necessary administrative services and support, such as eligibility determination, claims processing, customer service, provider payments and other back-end administrative functions. Some also offer technology platforms, support for provider network development, and negotiate with health systems to help employers achieve the best rates.

Though very large employers — such as GM, Intel and Boeing — pioneered this model, it has become increasingly attractive to a wider base of self-insured groups and health systems as the broader industry understands and recognizes the benefits over competing models.

When choosing a TPA partner, employers should assess whether the TPA can demonstrate extensive provider contracting expertise, build a provider directory, help with member navigation, arrange unique reimbursements, apply rigorous quality standards for helping employers evaluate health system partners, has a strong technology platform, and delivers personalized customer service.

Real results

Direct contracting is an evolution that allows both employers and providers to move forward with arrangements that benefit their organizations and the patients/employees they serve — rather than penalizing one at the expense of another. Whereas HDHPs focus on costs often at the expense of employee and provider goodwill, direct contracting offers aligned incentives for all parties and a clear impact on cost, quality and employee satisfaction.

When direct contracts are successfully implemented, it’s not uncommon to see excellent results compared to fragmented Open Access plans including an increased shift to primary care, fewer hospital admissions, fewer hospital readmissions, fewer ER visits, improved patient outcomes and higher member satisfaction.

It’s a model employers should explore on their journey to building a happier and healthier workforce.

Michelle Zettergren is the chief sales and marketing officer and president, Labor, of New York-based Brighton Health Plan Solutions, which partners with self-funded health plan sponsors across the country to build health care solutions.

Read more: 

• Direct contracting – doing it right! – with T.J. Morrison
• CMS proposal for direct-contracting model may put private groups in charge
• Colorado alliance turns to direct contracting to take on high health care cost