Direct Contracting With Self-funded / Self-insured Employer Health Benefit Plan Sponsors - Are You Ready?

Hospitals have been loathe to take action or firm up strategies and tactics in direct-with-employer contracting because they haven't realized they are frogs in a pot of water with the temperature slowly increasing.  Self-funded plans are now more than ever curious about contracting directly with providers.  I've been involved in these contract negotiations for nearly 20 years, but the heat has been turned up in the last two years. 

Frankly, as a CEO, I get why the employers took the wait-and-see approach as King v Burwell unfolded and the ACA rolled out. But now, its time to slap the horse they are going to ride and giddyap on the dusty trail to compliance.

My broker colleagues tell me that the most notable trend of the post-reform era is the rise of self-funded employer health plans. Why? Because of double digit insurance premium rate increases. That's why.

In self-funded plans, employers set aside resources in a 501 C9 trust account and hire a Plan Administrator as a fiduciary to pay employees’ medical bills themselves rather than paying "throw away money" premiums to an insurance company.

Self-funded and self-insured employer plan sponsors often purchase reinsurance to protect against excess losses and catastrophic condition claims. the reinsurer determines an "attachment point" that protects the employers' funds in the trust account after the plan's (aggregate) or an individual's (specific)("spec and agg")  claim expenses reach a predetermined threshold of an ''allowable" rather than "billed" charges. Once the reinsurer takes the financial hit on a claim that reaches the attachment point, they "laser" the claim or the individual for similar claims. That means the employer either pays more to keep benefitting from the protection of the reinsurance on the lasered claims, or, alternatively, the employer (and their trust fund or corporate assets) directly takes the hit for subsequent claims and ongoing treatment for the same or a related condition.  In cases where unions are involved and benefits are a negotiated perk as a union member, the employer can't simply say "OK from now on, all surgeries associated with lasered claims or individuals must now go to India or Mexico."  Nor can they contract with providers for capitated flat fees per-member-per-month (PMPM), because that form of claim funding is reserved for licensed insurers.

The increase in self-funded employer health plans has created a new opportunity for hospitals, doctors, clinics, and other healthcare providers in the USA: Direct-with-employer contracting.

Each hospital (except in Maryland) has its own unique price list. From this price list, third party administrators, insurers, governments, and others begin negotiating prices and terms of payment - often at or below 45-55% of billed charges. Why can't the employer do these deals without the intermediaries? That's simple: They often have no clue how to do it.  

And after the CIGNA class action lawsuit announcement today, it appears that employers have been taken advantage of by being sold a "pig in a poke" for a lot of years. They've paid for services they allegedly didn't receive, they've paid for alleged incompetence in the contracting process and discounting formulas, and more.

It may surprise you to learn that in the USA, about 70% of the non-government health insurance is paid through these self-funded health benefit plans, retiree plans and union health and welfare plans organized under the Taft Hartley Act. It may further surprise you that there are about 500 accredited licensed health insurers, accredited by the National Committee for Quality Assurance (NCQA). There are about 210,000 employers operating self-funded plans - and the number is growing!

Why should a hospital (or ASC) care?

If a hospital wants any kind of brand loyalty, exclusive deals, or steerage, it will need to figure out what is important to the employer, decide if it wants to supply those "need to have" and "nice to have" requirements and eliminate the competition with first mover deals that leave the competitors and medical tourism suitors who would like a chance wondering what happened.

Hospitals must do five strategic things right away:

1. Data mining for a specific employer. Use the existing claims and services and payment data to inform the C-Suite and the Medical Staff of what to sell, what's important, to whom and why.
2. Population assessment.From your data mining, you'll be able to produce a list of which services are in high demand from a particular employer group, look at that employer's population. They are as concerned with population health management as every other "insurer" - even though most self-funded employer health benefit plans are not "insurance", per se.
3. Personas. Create persona profiles for three to five groups within their population (inclusive of their retirees and their dependents, if coverage extends to them.) Assuming you are doing this on speculation and without permission to mine the metadata deeper and no real budget to hire custom research just yet, make some "back of the napkin" level observations about the population, what will appeal to them, and how it could be presented as a compelling offer. Ensure that each offer is compelling to both plan administrators, executives, board members, and employees. (Psst: When we do this for clients, we include our expert epidemiologist who has health insurer and family medicine practical work experience on the project. Just sayin'...)
4. Custom Packages. Create a base product intended for the benefit of self-funded, community employers and their plan participants - and others with whom they wish to establish steerage relationships within their "relevant geographic market".  It should be different than what is offered to TPAs and licensed insurers who treat the hospital like a commodity (that it is - to them).  In fact, consider developing and implementing a program of flat fee bundled case rates.  The more innovative and creative you can be, employer-by-employer, the more difficult it will be for your competitors to compete with you. (Need help developing the bundled case rates?  AskMariaTodd?. I laughed when CMS and Prometheus started hyping this and called it "new", because I've been building and implementing surgical case rates for single groups, hospitals, and IPAs and PHOs with superb success since 1996. The best way to begin is to start with 5-6 outpatient surgery case rates. Here's a free white paper "how-to" primer on how to construct them.) Then add 5-6 more every few months. 
5. Create a draft contract or agreement. This contract will be on your paper and articulates the value proposition, preferred rates, brand amenities, and market comps, and actively start selling to the employers.  (I can help with this, if needed. It is not an expensive project and you only need one master contract and some alternative snippets of language. It is quick (10 hours or so) and costs about $3500.) Once you have a practicable draft, then run it past your attorney for compliance and enforceability.  If you add the case rate feature, you can accelerate payment in full for the case rates to prepayment (like the Cleveland Clinic and others do for their U.S. medical tourism programs) to accurate and timely payment of the bundled rates within 10 days of the procedure.

AskMariaTodd?

How to begin?

Well, I just gave you the first five big steps. If you need help with them, start by asking me your questions. Questions are always free. I charge for long detailed answers and specific strategies and action plans. Need a quick (under 10 minutes) answer as a courtesy? Come and AskMariaTodd?.

The ACA 2014 final rule for hospitals from the Centers for Medicare & Medicaid Services, require that they make public their standard charges for the items and services they provide. CMS has interpreted “standard charges” to mean the prices established in the chargemaster. Don't try to make bundled case rates without knowing your costs!  

As a former surgical nurse, I can assure you that if I have 5 general surgeons performing hernia repairs or gall bladder surgeries, the cost basis will vary among them - sometimes by thousands of dollars.  Consider doing a housekeeping exercise in the surgery department that can clean up waste. In every project I've run for hospitals and ASCs to do the cleanup exercise, I've been able to trim about 30% of case costs and waste from every OR, while increasing room turnover capacity to add one to two cases per day, per room (makes for happy surgeons and CFOs), while increasing patient safety and time under anesthesia. Some people refer to this as LEAN, but I don't.  I assume people see this as Lean because it is focused on improving process speed and quality through reduction of process wastes. I'll grant that, but it does so much more.  The eight Lean process wastes all consume unnecessary energy, money, and time – those investments are often seen as a way to reduce process wastes are not things that provide value to the customer - but they do! I can think of at least 4 ways that the customer will realize benefits - and the patient too! To me this is more Kaizen, which acknowledges that everything can be improved and everything can perform better or more efficiently. I run these as "quick strikes", meaning results are achieved in about one week and they have a simple, straightforward tactical focus. The difference in how we do them with Mercury Advisory Group is that the consultants in this case are not recent graduate generalist management consultants. They are surgical nurses that know the OR inside and out, the instrumentation, the cases, the patient risks and safety, the case setups, and the workflows- and who also know managed care, contracting and revenue cycle operations.  For us, this is not a punch list formula project as it is for consultants who try it without that critical background knowledge and a cost containment orientation. There's no textbook template for this project. Each is unique to the hospital or ASC that owns the project.

When you are ready - start asking your local insurance agents, brokers and benefits consultants to come have a coffee or a lunch with you. Pick their brains and then offer them an opportunity to help you present your new product to their clients. How you reward them is your business.

After you have the brokers, agents and benefits consultants on board and informed, then start inviting the employers in for a familiarization tour and an introductory presentation (yes a PowerPoint is required, as well as an informative brochure, developed professionally, in InDesign and printed on decent quality paper - not some MS Word flyer full of wordy, nerdy type that nobody will ever read.)  Build out a tidy little functional patient portal that can be tested, put through its paces and shown to the employers as a way to interface with their plan participants.

Be a hero. Come up with a bespoke solution for those nasty lasered claims - they are not usually high in frequency or visit or surgical volume but boy are they doozies when they hit. This will prevent the reinsurer from suggesting a medical tourism supplier in another state to handle the case for them.

Want more tips like these?

You should follow me here on LinkedIn's Pulse or on my new Google+ Communities (Groups). You can also subscribe to my free e-newsletter or read my blog at: MercuryAdvisoryGroup.com  and MedicalTourismStrategy.com.

I will be teaching an upcoming workshop in Denver this week. The topic is contracting and it covers a significant amount of information on bundled case rates and direct contracting. Registration is still open and hotel rooms are still available. The class will be held again in May if you miss this one.   Call or write if you'd like more information about attending the workshop or sponsoring a similar program near you. 

Cheers! Happy New Year!