It costs employers a lot to provide healthcare for their people, to have a healthy and productive workforce. But times are different, or rather, unprecedented. Due to market forces accelerated by the pandemic, organizations are now looking for ways to offer quality care while keeping costs as low as possible. It is a conundrum. But current disruption also presents an opportunity for putting in place enduring positive change. Employers can, indeed, drive healthcare innovations. Here’s how.
More than half the nation’s population – some 180 million individuals – get health coverage through their employer. Collectively, employers spend a whopping $880 billion on healthcare. What with exacerbating tumult fueled by the pandemic, there’s no time like the present to break new ground to reduce employers’ costs and improve employees’ outcomes.
One way some organizations are reducing costs is through direct contracting with healthcare providers, which excises the middle ground. In fact, the number of employers that use direct contracting is expected to triple this year.
How it works is, instead of paying premiums to insurers for pricing that’s out of their hands and beyond discussion, companies contract directly with providers for their employees’ health care needs.
The Benefits of Direct Contracting
A top benefit of direct contracting is the substantial savings derived from discussions about cost and quality that doesn’t happen with traditional healthcare paradigms.
Other benefits include:
n Elimination of the “middleman,” which really means complicated processes that aren’t built for negotiation.
n Creation of a direct and financially beneficial kinship with the provider community.
n Decreased costs, as we say, but without sacrificing care quality.
n Promotion of common interests between organizations and providers.
n Enhanced price transparency.
n Promotion of smooth-running pricing plans.
n The prospect of directly linking costs with employee health outcomes.
Gaining the Right Direct Contracting Partner
While direct contracting works for most organizations, it’s crucial that you pick the right partner. Agreements must be beneficial for everyone, and organizations must be ready to pull all the elements together. To achieve true healthcare innovation, you must have a partner with:
n Experience with direct contract negotiations
n Analytics that can assess whether direct contracting is effective and viable
n The capability to fold direct contract claims into medical plan reporting
n Experience developing networks and establishing maintenance teams
n Clear and easily understood payment structures
What Kinds of Organizations are Best Suited for Direct Contracting?
Direct contracting is most effective when:
n The organization is self-funded
n The organization has the size and geographic location to influence provider negotiations
n The market is driven by provider competition
n Organizations and providers are amenable. For instance, providers are usually only open to direct contracting if they’re assured that the contract will increase their services or patient population. They also want to know that rivals will be removed from the network.
What’s an Example of Direct Contracting?
For its part, the giant retailer Walmart directly contracts with the Cleveland Clinic for heart procedures, and with Johns Hopkins for joint replacement operations. It also partners with the Mayo Clinic for cancer treatment and transplants.
As you can see, there are moves employers can make to drive healthcare innovations, including putting in place direct contracting. It’s a tough balance: costs in one hand, quality care in the other. But organizations would do well to use this tumultuous time to reinvent for value. The consultant Mercer, for one, can help companies establish a benefits strategy that maximizes value both for them and their employees.