Employer-Hospital Direct Contracting: Not Always a Sure Thing

Large, nationwide employers like Mooresville, N.C.-based Lowe's and Bentonville, Ark.-based Wal-Mart Stores have taken great strides to cut down on their healthcare spend per employee. Both companies struck a deal with four hospitals — in markets including Seattle, Baltimore, Missouri and California — to provide hip and knee replacements with no out-of-pocket costs for their employees and dependents. Lowe's also has a direct deal with Cleveland Clinic for cardiac procedures.

These relationships are beneficial for the employers, as they can achieve healthcare savings through negotiated bundled case rates and also gain greater transparency in cost and quality of their employees' scheduled procedures. Additionally, as any health plan operator knows, a small group of employees can drive significant healthcare costs. If companies can steer those employees who need the most costly, highly specialized care to a health system that demonstrates little variability in outcomes, savings can be achieved.

Hospitals and health systems benefit from these direct-to-employer relationships as well.

"[Hospitals] really have direct access to their members," in these relationships, says Thomas Johnston, CEO of EmployerDirect Healthcare. "They get all the business from the employer at a lower cost," and don't have to compete with other organizations for patient volume, as is typical with the traditional insurance network.

As these relationships grow in popularity and number, Mr. Johnston says it is important for hospitals to remember two considerations as they strategize and pursue direct contracting relationships.

Communicating with members. Though there are benefits for the hospitals that choose to enter these types of relationships, they can't reap the rewards unless the company's employees actually use the service. This, Mr. Johnston says, is the major challenge associated with this model: Just because a contract exists between a hospital and an employer does not mean the employees will take advantage of the benefit.

"Once they have a contract with an employer, how do they reach those members?" he asks. "The challenge is communicating the benefit."

EmployerDirect uses care coordinators to handle member cases from start to finish — everything from answering questions and scheduling appointments to transferring records, collecting quality data on providers and supervising member satisfaction surveys. Many individual hospitals have difficultly fulfilling the crucial role of communicator, Mr. Johnston says.

Patients' willingness to travel. Right now, it's common for companies with employees spread across the country to contract with regional systems where many employees are concentrated. But many employees may not be willing to travel far for their care. "It's hard to leave their family and go long distances for a major procedure," says Mr. Johnston, though many arrangements do allow for a family member to travel with the patient.

The way to rectify this issue is for local hospitals to partner with employers in their area for these types of contracts, so members would only need to travel up to 60 miles to receive treatment. "[Members] are more willing to use the benefit, as opposed to going on an airplane to get a provider," he explains.

This strategy must take the service or specialty into account, though. For instance, there are likely differences in how people approach cardiovascular surgery and obstetrics service. Some employees may be more willing to travel further for their care if they need a major, complex procedure performed and the provider can demonstrate better outcomes. Other specialties, like occupational medicine or obstetrics, are better suited for more local relationships.

For certain procedures, such as spine and orthopedic, it may be better to belong to a network of providers like EmployerDirect's, Mr. Johnston says. This option allows employer's members to travel to high-quality providers within shorter distances of 30 to 100 miles.

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