4 executive insights on the challenges of direct-to-employer models

As hospitals and health systems shift toward value-based reimbursement and look to remain profitable while adapting to what healthcare consumers want, direct-to-employer models are on the rise. 

This article is sponsored by Global Healthcare Alliance. 

Employers are increasingly frustrated with a lack of transparency into health plans' premium rates and coverage policies. Furthermore, employees are becoming less satisfied with how services are offered through their health benefit plans. To improve care quality and reduce administrative costs, some employers are fostering direct relationships with medical providers.

Through direct-to-employer contracting strategies, hospitals and health systems can secure direct reimbursements through gain sharing and give medical providers a stronger voice in developing protocols for managing patient cases and care regimens, all while helping employers cut healthcare costs.

However, as medical providers navigate the best ways to put these strategies into action, they face a number of challenges, particularly when exploring price transparency, developing payment models that serve diverse patient populations and jumping over various administrative hurdles.

Twenty-three hospital and health system leaders from across the U.S. shared four insights on what healthcare organizations should consider when implementing direct-to-employer models during an executive roundtable discussion April 11at the Becker's Hospital Review 9th Annual Meeting in Chicago.

1. Establishing what employers want from relationships with medical providers. As health systems look to partner with employers across markets, executives must ask what employers value within these relationships. If a partnership is established, leaders must also conquer administrative challenges, such as deciding whether to enlist third-party administrators and how to best to monitor and engage with these patient populations.

"We used to approach the employers or brokers with a 'one-size-fits-all' mindset, but wanted to change that dialogue," said the senior vice president and CMO for population health at a Southeastern health system with 45-plus hospital campuses. "Now, what we've done to approach employers is to examine the whole value chain," he added. "We start by looking for navigators for these programs, which can be as simple as getting patients next-day appointments after they receive a cancer diagnosis. It's crucial to reach the patient and go beyond just telling the employer what services you can offer — you really have to take a look at all the people who are in the value chain of this program."

The president and CEO of a five-hospital system in the Midwest noted various disruptors entering the healthcare landscape are complicating how providers approach employers for contract negotiations. "What frustrates us is the broker community is speaking into the ears of EHR vendors. When looking at these programs, we need to protect our value proposition while we launch these relationships. We know our costs, but we have to determine how to make these transactions."

2. Exploring price transparency in the era of patient consumerism. Several executives offered perspectives on how price transparency affects their health system's goal of lowering healthcare costs. "People aren't used to shopping for a price for healthcare and assume services cost the same across facilities," said the president of a four-hospital system in the Northeast. "As they start to look more, I think price transparency will become more important." The executive provided an example of how his employees frequently seek care outside of their facilities, spending up to three times more on medical services.

"One of our nurses paid close to $3,000 for a CT scan at one of our local hospital systems when they could've gotten the same service for $500 [at our facility]," he said. "When I asked why they did that, the nurse said they weren't aware they could receive the service at a lower cost. We struggle even in our own system at getting employees to realize they can actually save money [as they begin shopping for healthcare]."

The executive vice president for health professional solutions at an academic medical center in the South discussed Healthcare Bluebook, which offers online tools for consumers to compare the costs of healthcare services. "It's just a matter of time before we see more of these services pop up because they give patients who want to shop for services the opportunity to be treated as a consumer," the executive said.  

3. Developing techniques for pricing bundles and attracting patients. The CMO for population health at a Southeastern health system described the appeal of prospective bundles when contracting directly with employers. Bundled payments lump reimbursement together for an episode of care, serving to bring people into a hospital system. "There's an upside to these bundles because you price everything together and get one payment from the [employer]," he said. "The argument you take is you're going to reduce the whole cost of care for that patient — the patient will be healthier and return to work quicker."

When deciding how to price bundles, executives noted the final rate must be fair to both the provider and employer. "I think the key point is if you're going to do a bundle and put forth time and effort, at some point you have to reduce your rates and design of the benefits has to be key," added the CMO for population health at a Southeastern health system. "For example, in 2017, Walmart made no deductible for their employees to use the Centers of Excellence program, so in this way, whenever you approach that employer, there has to be a significant benefit differential for using their service as opposed to another service." Walmart's Centers of Excellence program gives employees access to care for certain surgeries, including spine procedures and hip replacements. Most procedures offered through the program are covered by Walmart in full without requiring a patient to meet the deductible. Numerous leading health systems participate in the program, including Cleveland Clinic and Rochester, Minn.-based Mayo Clinic.   

The president of the four-hospital system in the Northeast noted that while pricing can help providers "get in the door" with employers, most companies are more concerned with patient satisfaction and care quality than about absolute savings. "What will really kill your program is if people don't have a good experience at your facility," he said. "We look at our model as a sort of concierge practice — we make patients feel special and that really goes a long way, especially when people have traveled to receive care from us."

4. Asessing disruptor deals as healthcare moves toward alternative payment models. In the wake of recent disruptors entering the healthcare market — from Amazon, JPMorgan and Berkshire Hathaway's venutre into a healthcare company to Walmart's talks to purchase Humana — several executives discussed concerns over how those deals may affect payment and care models. 

"I worry about the discontinuity of care with the increase of pop-up immediate care centers," said the vice president of care coordination and clinical resource management at a six-hospital system in the Northeast. "Patients are going to these facilities and are only paying for their sore throat or whatever issue they have at the moment, which I think is distracting from what we are trying to put in place for the total cost of care and situations where we look at a patient's total journey."

However, the chief digital officer of a 937-bed hospital in the Northeast noted the positive effect disruptors often have on an industry, forcing leaders to think more creatively. For healthcare, these disruptors will allow leaders to innovate around and potentially work to lower the high costs of care for patients. "What disruptors like Amazon and Apple are attacking is that the healthcare industry does create a lot of wealth in certain pockets," the chief digital officer said. "We can't just go around thinking that's not happening."

The CMO for population health at the Southeastern health system also expressed concern over retail giants like Amazon entering healthcare, but highlighted the potential value in allowing healthcare leaders to continue exploring alternative payment models. "I think the payers and brokers are going to be more scared of these deals. Amazon can get to the supply chain and pharmacy side, but that's OK because those are the costs we struggle with, and we stand to benefit from these disruptors," he added. "I think working on these direct-to-employer programs is our opportunity to be successful. We can change our dynamics with payers, but working with the employers will be our lifeline going forward. If we can figure out bundles and migrate down the value chain, we can see success."

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