Business of Well-being

The Case for Direct Physician Contracting

With insurance networks and reimbursements shrinking, physicians have been scrambling to find ways to avoid the insurance and managed care pitfalls. Simultaneously, employers who are self-funding the medical claims of employees have been searching for ways to contain costs. Yet, these two entities have done little to collaborate directly to solve both issues.The new buzzword in the healthcare field seems to be "transparency."

It is used in a multitude of ways among healthcare providers and hospitals but with little emphasis on actually staying true to the meaning. A recent report from Gary and Mary West Health Policy Center showed a potential $100 billion in healthcare savings over the next 10 years via transparency.

Hospitals and insurers have announced forthcoming "transparency initiatives," but have been slow to show the actual prices for procedures. Hospitals and health systems have also been strategically aligning their services to create what will be known as ACO's. However, by all outward appearances, these will be little more than modern incarnations of HMO's.

High volume and high dollar cases like orthopedics, spine, vascular and general surgery have notoriously been the most costly for self-funded insurers. Depending upon the employer's network and where the surgery is performed, the fees for something as common as knee surgery could range from $11,00o to $35,000.

Fees like these can have a significant impact on the bottom lines of employers. Also, benefits administrators were tasked with weeding through several bills for all components of the procedure including, professional fees, facility fees and anesthesia fees.

Through this confusion, a small but growing number of private physicians and specialists have taken to the internet and other resources to post their global fees for service. Their goal is to create direct contracting relationships with self-funded employers for reduced global fees for common procedures as well as not so common procedures.

The knee surgery mentioned above can be priced as low as $4,900, all fees included. Hernia surgery for $3,800. This ability to create global fees comes because of physicians to be able to control costs and overhead in their privately owned surgical centers. Cost and overhead has proven to be something that most large hospitals continue to be unable to control and that lack of control is reflected in pricing via the hospital's chargemaster.

Although it seems like the chargemaster would hold some rational bearing on price, it is instead solely the hospitals prediction of the cost of a procedure with a large profit percentage built in. However, with the growing transparency initiatives among independent providers, self-funded employers are at perhaps their most advantageous point to date.

Self-funded employers now have the ability to create direct relationships with these providers and know in advance the entire cost of the procedure. Secondarily, this cost forecasting can be used to incentivize employees to choose lower cost providers outside their insurance network.

The inherent question among many employers and employees revolves around the quality of care at these transparently priced medical practices. The common thought is that if the price is reduced then the quality must be reduced as well. However, quality is related to the skills and experience of the physician, not price.

A physician who is board certified, credentialed and experienced maintains the same standard of care regardless of price. In fact, in most states physicians need to maintain hospital privileges to operate in an Ambulatory Surgery Center. Cost is based on the removal of intermediaries and no study has linked the price of a procedure to an outcome.

With a simple amendment to a plan document, employers can contract directly with transparently priced medical facilities in their area, or even across state lines. Many employers are confronted with the challenge of directing employees to the centers they have contracted with in an effort to save the employer significant amounts of money.

One of the more popular incentives has become the employer funding 100 percent of the claim and waiving any co-insurance for the employee. Essentially, employees are told that if they choose one of the employers Centers of Excellence for their procedure, they will receive the episode of care at no cost.

Even by funding 100 percent of the claim, the employer is saving money because these procedures are priced below what their employer responsibility for the claim would be through an insurance or network arrangement. Many times, travel is required for patients who are utilizing directly contracted centers.

In the instance of Wal-Mart and Lowe's, who partnered with four national medical institutions for hip and knee replacement surgery, patients often had to travel several hours or by plane to the nearest center. However, both companies determined that even with the cost of travel and accommodations the cost savings was still substantial.

In an effort to determine the cost savings that is possible by direct contracting an employer, or TPA, will do a claims analysis of the most common surgical procedures seen by that employer and match them up to the prices offered by transparent medical centers. They can then project a baseline cost savings per year.

About the Author

The Free Market Health Group, founded by Daniel Goldberg, has been outspoken advocates of transparent medical pricing and works with medical providers to create transparent global fees for service.

The Free Market Health Group's network of surgery centers on the East Coast provides transparent global fees for service for orthopedics, spine, vascular and general surgery.

The Free Market Health group continues to expand its network of surgery centers by contracting with healthcare providers across America to allow access to high quality and affordable care to self-funded employers across America.

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