2019: The Year of Direct Contracting Between Employers & Health Systems

Frustrated by escalating corporate health benefit costs? Direct contracting with a hospital might be a good option for your company if you are thinking about how to get rid of health insurance altogether. Like many negotiations, directly contracting with a hospital to provide health care for your employees could save your company millions.

Although direct contracting has been around for years, mounting pressure for hospital pricing transparency and anxiety over how drastically rates will drop after the next election cycle led to direct contracting being one of the biggest health benefit trends in 2019.  

What is Direct Contracting Health Care?

Direct contracting with a hospital, health system, or physician group can yield significant cost savings within your company’s healthcare budget. Rather than use a third-party for insurance, direct contracting allows you to negotiate prices and payment options with a particular organization, usually a hospital system, and you, as the business, pay directly for your employee’s health care costs.

For example, maternity services often drive up a company’s healthcare costs significantly. However, you can directly contact with a hospital and require your employees to use that particular hospital for their maternity care and save thousands per delivery.

Two of the most significant areas of growth in direct contracting are cardiovascular care and cancer. Often, these are some of the most cost-intensive areas of medicine. Direct contracting can bring these costs back to a reasonable level.

Shopping around can also yield significant differences in care and costs. One hospital can offer a package of doctor's visits, prenatal supplements, and delivery for one price and a similar hospital may charge two to three times the amount, simply because they are in a better location, such as being close to the highway.

Getting Your Company In On Direct Contracting

Small and medium-sized businesses can direct contract with hospitals just like the large ones. Even though Amazon, Walmart, and JPMorgan have received a lot of attention for direct contracting in recent years, hospitals are also open to contracting with smaller businesses. The hospitals stand to lose business to the competition if they don’t beat them to the punch by contracting with your company!

We do not recommend trying to enter direct contract negotiations with an extensive hospital system if you have no experience. Experienced brokers and benefits advisers like David Contorno, Founder of E-Powered Benefits has had great success with direct contracting.

"In one plan, we had an employer with a PPO plan from one of the big carriers in a rural area, and 90 percent of the care was going through one health system in the county," Contorno said. "After the PPO discount, they were paying, on average, 250 percent of Medicare. When we approached the hospital, they said they could not agree to rates below 220 percent. However, after talking them through some of their revenue pain points, we were able to get them to agree to 140 percent of Medicare in a direct contract."  

In this case, the company was spending $6 million of its total annual budget of $10 million with that one health system. The most recent projections for year one of the direct contract are estimated to cost only about $2.5 million. This savings lowers unit cost and puts protections in place to minimize unnecessary and low-value care within the employee population. In the first year, a projected $3.5 million savings is the result of direct contracting. That's true Health-Wealth!  

Locate Favorable Options

The first thing to look for is that the hospital itself is a Center of Excellence. These hospitals develop specialized programs to supply expertise and related resources and delivered in a comprehensive, interdisciplinary fashion. Basically, the Center of Excellence takes care of particular needs, like maternity or a surgical procedure, entirely with the highest level of service and preparation for any problem.

Beyond providing quality service, the Center of Excellence means the organization is open to multiple forms of payment and levels of service while keeping rates reasonable.

For small companies, keep in mind many small doctors offices are becoming concierge services and cash-only payments. These types of offices are exceptionally easy to negotiate with, as they prefer regular payments for a set number of services. You could quickly negotiate wellness check-ups, yearly physicals, and specific medical procedures, as well as prescription medication coverage, with these doctors for a small fraction of the cost of insurance.

Additional Insurance Needs – If you need any at all

Many people do not consider how much it will cost to go to the emergency room, just that in the heat of the moment their concern is being taken care of quickly and efficiently.

Part of the negotiations must be for emergency services. We recommend using a broker to negotiate with providers that have urgent care facilities used before emergency room visits. Not only are they a significantly lower cost, as much as 90% cost savings, but they can also handle the majority of the problems in the emergency room takes care of.

You may choose to get supplemental insurance to cover emergency care and advanced specialist cost.

Final Word

Negotiating with direct care providers before utilizing services can reduce the number of unnecessary tests and procedures done on a person.

When someone has a heart attack, nearly $100,000 worth of services does nothing to aid recovery. They are there to satisfy regulations.

A considerable benefit of direct contracting is the employer can negotiate for the hospital and physicians to avoid over-utilizing and over-prescribing tests and procedure. The benefits include saving you money, getting your people out of the hospital faster so they can recover in the comfort of their home, and the doctors can help more people.

If you’re interested in learning more about direct contracting for your company, reach out to us at Health-Wealth.com, and we’ll get you connected to the expert who best matches up with your needs.  

Dr. Josh Luke is a hospital CEO, celebrated keynote speaker, award-winning Futurist, LinkedIn Influencer, a faculty member at the University of Southern California’s Sol Price School of Public Policy, Founder of the not-for-profit Health-Wealth and author of the book series including Health-Wealth: Is healthcare bankrupting your business? and Health-Wealth for You: 11 Steps to Save Big & Live Healthy (both Amazon #1 Best Sellers). Dr. Luke delivers engaging and entertaining keynotes that teach audiences simple concepts on how individuals and companies can save thousands on healthcare. For more information, please visit www.DrJoshLuke.com.