Direct Contracts Blaze a Trail to Higher-Value Healthcare | Mercer

Direct Contracts Blaze a Trail to Higher-Value Healthcare

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Direct Contracts Blaze a Trail to Higher-Value Healthcare
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Calendar25 April 2019

More and more, employers are discovering that better quality and lower cost go hand in hand. A new report in the Harvard Business Review (HBR) tells how Walmart is saving real money through an innovative program that sends employees to Centers of Excellence for certain costly procedures like spinal surgery and joint replacement (you’ll need a subscription to HBR to view the whole story). Patients who agree to seek care at designated facilities receive “soup to nuts” coverage — travel costs included. Data show that COE patients have shorter hospital stays and lower readmission rates than those who opt out. Now in its sixth year, the program boasts a higher than 95% approval rate among the 5,000 employees who have used it.

The special twist is that Walmart negotiated directly with the facilities to set bundled payments for all the care associated with these procedures, saving still more by handling the contracting themselves rather than working through a health plan. The article highlights how other big employers like Lowe’s, GE and McKesson are also saving by negotiating directly with healthcare providers. These arrangements are clearly more common among the largest employers. Mercer’s latest National Survey of Employer-Sponsored Health Plans found that 10 percent of employers with 20,000 employees have entered into direct contracting arrangements with COEs, while 16% have contracted directly with Accountable Care Organizations. Among employers with 5,000 to 19,999 employees, those numbers drop to just 3% contracting directly with COEs and 5% with ACOs.

Healthcare Revolution?

While not every company has the resources or population to initiate and support direct contracting, the approach is of interest not only as a way to lower costs, but to improve quality. Will there be a more mainstream reaction that everyone will benefit from as a result of these direct contracting efforts? The HBR article notes that this has the potential to “revolutionize healthcare.” Maybe one of the revelations will be wider acceptance of smaller networks that are more focused on quality of care and outcomes. This approach matches up nicely with HHS Secretary Alex Azar’s recent announcement of new payment models for Medicare. He has more than Medicare on his agenda — in his speech, he said. "This initiative is specifically designed to encourage state Medicaid programs and commercial payers to adopt similar approaches."

Direct contracting is, ultimately, a means to an end – getting more value for the money spent on healthcare. You may not have Walmart-sized leverage, but there are steps any employer can take to maximize value. Check out the Vitals for Change Scorecard – a joint project of Mercer and the Catalyst for Payment Reform -- for ideas.

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