ACO “Direct-to-Employer” health plans – Why not?

There has never been a better time in this nation's history for medical providers to take control of the health care system than now.

Health Care Reform has produced a number of challenges to the way that medical providers are paid and the number one question is - how you adapt while still remaining profitable. One of the key opportunities available today is through the development of a health plan strategy with self-funded employers in your community. In the context of this article I will refer to medical providers as Accountable Care Organizations (ACO) but any type of provider organization can avail themselves of the strategies provided.

An ACO's payer mix and negotiated contracts with third party payers directly impact its financial stability. In most instances, commercial payments represent the greatest contribution to margin. The majority of an ACO's commercial payments are secured through managed care organizations and PPO networks where the ACO is a passive participant in the transaction. When the PPO network or managed care organization is the intermediary in securing commercial business the ACO has little leverage in defining its relationship to the individual or employer purchasing health care coverage. In this system the ACO is nothing more than a discounted medical delivery system.

Employer-sponsored health insurance covers about 149 million nonelderly people in the US according to the 2013 Employer Health Benefit Survey conducted by Kaiser Family Foundation (Kaiser) and the Health Research & Educational Trust (HRET). For the ACO the employer-sponsored segment of its commercial business is substantial. With the advent of Accountable Care Act (ACA) there are increased uncertainties and escalating costs for employers that continue to offer a group health plan. Other key market forces indicate that:

 - Employers are looking to establish direct relationships with medical providers to improve quality and reduce costs
 - Employers are becoming more frustrated with the lack of information when rate increases are being presented
 - Refugees from the fully-insured marketplace are looking at self-funding alternatives
 - Employees are increasingly becoming less satisfied with their health benefit plans
 - 57% of health plans are self-funded today, an increase of nearly 30% in the past ten years
 - There is very little risk management in the marketplace to manage and understand the key elements affecting healthcare quality and cost

An ACO can take advantage of current market conditions by developing a direct to employer contracting strategy. Key benefits to this strategy may include:

 - Securing direct reimbursement terms through gain sharing, plan management revenues, increased revenues through payment of certain disease management regimens of care, and reduction in outmigration of services through plan design and plan steerage
 - Directly having a voice in the development of protocols and procedures with regard to case management, regimens of care, referral authorizations, plan design parameters and use of nurse managers to effectively engage in population health management in order to positively impact employers' healthcare budget.
 - Disintermediate commercial payers in order to better negotiate current reimbursement contracts

ACOs interested in developing a direct to employer plan need to understand what is required in order to deliver its medical delivery system. Many of the key requirements are provided below:

 - A complete network of medical services through the ACO in addition to wrap networks for out of area emergent care and out of area plan participants
 - Administrative Systems – claims, customer service, fulfillment, compliance, data reporting, billing, etc.
 - Stop Loss Insurance coverage that incorporates contract arrangements and care management results
 - Integration of claims data, biometric, health risk assessment, and some EMR data
 - Population health management, wellness programs, nurse coaching
 - Educate and communicate with ACO providers for gaps in care and clinical practice improvement
 - Deployment of technology to stratify risk segments for properly targeting of potential large claimants and management of chronically ill members of the commercial population
 - Administration of plan designs
 - Sales, marketing, branding, and broker distribution
 - Financial distribution of gain share disbursements & reporting

It may not be enough to desire a direct to employer program. ACOs first need to answer the following questions:

 - Is the current composition of ACO providers commercially viable?
 - What other providers are needed to round out the current ACO?
 - Do we contract with a local, regional, or national PPO to provide a complete network of providers in our ACO?
 - What administrative infrastructure can we insource versus outsource?
 - What initial capital is required to deploy a program based upon an insourced versus outsourced model?
 - Who are the primary commercial payers and insurance producers in the market and what is their value proposition?
 - What are the local purchasing patterns of employers and what key issues drive purchasing decisions?
 - What analytics and administrative systems are needed to appeal to a self-funded employer?
 - How do we actuarially price the impact of our ACO in the commercial market?
 - How do we define our value proposition with employers and insurance agents?
 - How is the program going to be marketed locally?

Most of the requirements to deploy a direct to employer plan may already exist with an outsourced administrative firm. In reviewing an outsourced partner, ACO's will want to evaluate the following critical items:

 - A full service administrative infrastructure that can provide claims processing, customer service, billing, COBRA/HIPAA compliance, agent commission tracking and payment, employee/employer and provider self-service applications, etc.
 - Access to high quality stop loss insurance underwriters
 - A proven track record of exceeding industry standards for financial, procedural, and processing accuracy
 - A proven system of care management results that can be integrated with the ACO
 - A proven means to commercialize an ACO alternative product
 - A successful insurance agent distribution model that has worked over time
 - A system to define a legitimate gain sharing model, tracking of results, and properly distributing excess funds to providers
 - A reporting and analytical system that can stratify populations based upon health status, determine gaps in care, provide clinically based physician profiling, integrate claims and biometric data, produce both customized and ad-hoc reporting tools on a "real-time" basis, and produce end user reporting to quantify success

It may be expensive and can require large capital outlays for ACO's to enter the direct to employer marketplace, however, opportunities abound for ACOs that can successfully align themselves with a successful partner who has a proven track record for deployment of - direct to employer strategies and without the requirement for large capital contributions to successfully set up and market such a program.

Jack Hill is Executive Vice President of Accountable Care Solutions Group, LLC, based in Chicago, IL. He can be reached at Bret Petrick, CLU, ChFC, CSFS is the ACSG Distribution Partner, based in San Jose, CA. He can be reached at

The views, opinions and positions expressed within these guest posts are those of the author alone and do not represent those of Becker's Hospital Review/Becker's Healthcare. The accuracy, completeness and validity of any statements made within this article are not guaranteed. We accept no liability for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with them.

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