Your hospital signed a direct-to-employer contract — 6 factors to help build a successful program

Employers are exploring direct contracting options with hospitals, health systems and other medical facilities in their quest to reduce costs and improve health outcomes for employees. These arrangements can help employers achieve savings, and they are also appealing to provider organizations that have developed strategies to effectively manage the health for specific conditions of a given population.

            This content is sponsored by Global Healthcare Alliance.

Direct contracting arrangements let employers negotiate bundled case rates with provider organizations, which is a huge benefit for companies looking for ways to achieve healthcare savings. Under these agreements, employers with self-funded insurance plans make a single payment to providers and healthcare facilities for all services to treat a specific condition or provide a specific treatment.

Since direct-to-employer contracts aim to maximize cost-savings opportunities, these agreements typically cover highly specialized care and treatments that can be particularly costly, such as cardiovascular care, bariatric surgery or joint replacements.

Employers can gain more control over employee health benefit design and realize potential savings by entering into a direct deal with a health system that provides high-quality care with little variability in outcome. These agreements are also a way for progressive health systems and other medical facilities to increase patient volume and market share.

However, there is risk involved with these types of agreements. Provider organizations responsible for improving health outcomes and reducing the cost of care for a specific population are exposed to financial risk if treatment costs or patient outcomes don't meet set benchmarks. When this happens, the health system absorbs excess costs of care or is financially penalized for lower quality metrics.

To ensure direct contracting terms are fair and sustainable for both employers and providers, stakeholders see value in engaging bundled payment experts for design, development, technology and administrative support.

Direct-to-employer models are on the rise

Direct contracting arrangements have been on the rise in recent years and are expected to continue growing in popularity as more employers and healthcare providers gain confidence in risk management, according to John W. Adams, director, president and CEO of Global Healthcare Alliance, a Houston-based company that designs, builds and manages prospective bundled payment arrangements.

He said payers' lack of progress in improving the value of healthcare has caused employers to seek out direct contracting agreements.

"While employers like the convenience of accessing large provider networks at negotiated reimbursement rates through large payers, they are getting frustrated with the payers' lack of innovation and lack of incentive to change," he said.

Instead of waiting for payers to more fully embrace value-based care models, some employers are seeking out predictable, multiyear agreements with hospitals and health systems that include prospective bundles for episodes of care.

Direct contracting agreements let employers and provider organizations develop innovative partnerships, and they allow provider organizations to operate more efficiently outside of health insurance companies' narrow rules. Mr. Adams believes these types of arrangements will help drive the industry's shift away from traditional fee-for-service medicine.

Key factors to consider in direct-to-employer arrangements

To achieve success with direct contracting agreements, the employer must first select the right provider to partner with.

"Based on the service lines the employer is interested in … they need to select a center of excellence program with high-quality care, significant volumes and a strong reputation," Mr. Adams said. A COE program involving bundled payments can not only promote high-quality care, but also help improve the patient experience and increase cost savings, according to Mr. Adams.

He said employers should seek out healthcare organizations that meet the following criteria:

1. The hospital or health system is nationally ranked

2. The healthcare organization achieves better patient outcomes than its competitors

3. The hospital or health system generates enough volume in the specialty covered by the agreement to establish best practices in clinical integration

4. There is a multi-disciplinary team approach among physicians, and other providers, and the healthcare organization

5. The hospital or health system has the capability to administer the program, including patient engagement and navigation

6. The healthcare organization can coordinate the claims administration and adjudication process to ensure proper payment to all of the providers, and manage the shared risk pool

The right technology and administrative processes are vital

Before entering into a direct contracting agreement, hospitals and health systems need to ensure they have technology with the data capabilities required to manage complex payment models, including prospective bundle contracts.

"Most healthcare organizations know their cost of services, but they don't have the capabilities to model risk in prospective bundle contracts," Mr. Adams said. "This requires access to facility and physician claims data and developing algorithms to model risk for episodes of care."

Accurately assessing risk is critical for health systems and other medical facilities entering direct contracting arrangements. "If you get the pricing wrong in these agreements, it can be a big miss, and the program will not be sustainable," Mr. Adams said.

To help ensure success under direct-to-employer contracts, hospitals and other provider organizations across the nation are using Global Healthcare Alliance's bundling adjudication software platform, Axia, which converts fee-for-service transaction data into contracted bundled package pricing and reimbursement models.

Global Healthcare Alliance uses large databases and proprietary algorithms to help healthcare organizations determine the feasibility of direct contracting arrangements in particular markets. The company works with systems to develop a portfolio of bundled episodes and then markets it to employers.

Global Healthcare Alliance can also provide healthcare organizations and employers with insights to help them take on certain services typically provided by an insurer. For example, when entering a direct contracting agreement, the health system and employer need transparency into cost data and other information to negotiate a fair and sustainable reimbursement rate for the bundles, according to Mr. Adams.

"By that, I mean it covers the amount of risk the provider assumes in the episodes of care, and it provides value to the employer based on: high-quality outcomes, reasonable utilization rates, right care at the right time, predictable costs, and employee and patient satisfaction," he said.

To participate in direct contracting arrangements, hospitals and health systems also need the capability to process complex claims such as bundled payments, which typically require additional data management and review to ensure proper reimbursement compared to traditional claims. Global Healthcare Alliance's platform can process these claims without disrupting the revenue cycle.

In addition to the right technology, health systems that contract directly with employers must also focus on improving the patient experience.

"From a day-to-day operations standpoint, engaging with the patient and helping them with registration and navigation through the process is critical," Mr. Adams said. "They expect concierge services in these COE programs."

CardioVascular Care Providers achieves success with direct-to-employer agreement

Since 2000, Global Healthcare Alliance has managed a direct contracting agreement between a multinational energy company based in Houston and CardioVascular Care Providers, a networkof cardiovascular physicians in Houston — and the program has achieved impressive results.

The center of excellence program includes a portfolio of outpatient and inpatient bundles covering everything from an office visit and diagnostic testing to heart transplants, according to Mr. Adams. The energy company incentivizes its employees to use CardioVascular Care Providers by paying 100 percent of the coinsurance and patient portion. For example, the energy company pays the patient portion and coinsurance if an employee uses a CardioVascular Care Providers physician and receives care at CHI St. Luke's Hospital in Houston.

Many direct contracting arrangements involve a national payer with a limited role, as is the case with the CardioVascular Care Providers program.

"The cardiovascular component has been carved out and is administered by Global Healthcare Alliance," Mr. Adams said. "The insurance company basically provides patient rosters for eligibility purposes."

The energy company has achieved cost savings for the 16,000- plus employees enrolled in the program and has improved the quality of cardiovascular care its employees' receive.

Moreover, the energy company has achieved cost savings of more than 30 percent for all employees enrolled who were admitted for coronary bypass grafts. The company has achieved cost savings of 10 percent to 20 percent for all PCIs.

The program has a zero percent mortality rate, and none of the employees who received a coronary artery bypass graft required a re-do within a year of the initial surgery, according to Mr. Adams.


Employers nationwide are taking strides to reduce healthcare spending, and many are contracting directly with hospitals, health systems and other medical facilities to achieve this goal. As the industry transitions away from fee-for-service medicine and toward value-based care models, these direct deals can be beneficial for the employer, employees and the healthcare organizations involved. Direct contracting arrangements can help employers achieve healthcare savings, improve health outcomes for employees and offer hospitals and health systems an opportunity to increase revenue by providing high-quality care to a set patient population.

"Unless insurance companies are willing to invest in their systems to accommodate these new bundled models, we are going to see more and more direct contracting," Mr. Adams said.

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