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NEW JERSEY Update: Cutting out the middle man – Direct provider contracts bypass insurers to link employers, hospitals.

By Anjalee Khemlani, February 17, 2016 at 11:09 AM

(Editor’s note: This report was updated at 3 p.m. Friday with comments from Ward Sanders of the New Jersey Association of Health Plans.)

Take a step back in time to a world where the doctor handed you the bill and there was no insurance company looming in the middle.

That’s the idea behind direct provider care contracts, an increasingly popular option employers are looking into, according to three lawyers from Epstein, Becker and Green.

“Instead of using a health insurance company and paying a premium, employers are negotiating directly with health care providers, including hospitals and health systems, for their services,” explained Anjana Patel, Gary Herschman and Adam Solander in an article set to be published in upcoming months. “In other words, employers and providers are entering into contracts with one another to bring health care services to employees for a certain set price or discount.

“Many employers are looking not only to increase the use of these types of arrangements to include a larger group of disease conditions, but they are also turning to the health care providers to innovate and develop additional programs to more effectively and actively manage population health.”

The surge in interest is mostly among self-insured employers, along with those operating within the State Health Benefits Program, or SHBP.

Last July, among the other pilot programs listed, SHBP listed the Direct Primary Care Medical Home program, which would allow a practice to assume contractual responsibility for providing primary care services and collect a monthly per-member fee for delivering and coordinating patient care. The plan would have no out-of-pocket cost-sharing from specified providers in various regions around the state.

It was described as a voluntary pilot program for non-Medicare members and their dependents who are enrolled in a non-HMO SHBP plan. The initial participation rate goal was 10,000 members within the first 12 months, and it would be handled by Horizon Blue Cross Blue Shield of New Jersey and Aetna.

A similar program is taking place on the state’s western border in Camden County.

R-Health, based in Elkins Park, Pennsylvania, is reaching across state lines to develop a primary care contracting model within New Jersey.

The organization began with a small employer, but couldn’t continue the contract due to the financial burden of providing benefits for the less-than-50-employee business.

“We are bullish on New Jersey,” said Mason Reiner, co-founder and CEO of R-Health, in a phone interview.

“New Jersey is going to be a big growth area because the state has come out in favor of direct primary care,” Reiner said, citing the pilot program.

The biggest challenge for employers in New Jersey looking to switch to this model is the lack of available supplementary insurance plans to cover the remainder of health care needs, Reiner said. But that will slowly change.

Currently, if three to five cents of every health care dollar is spent on primary care, the cost would increase to about seven to nine cents for the direct care plan, Reiner said. This is because the model focuses on relationships with primary care physicians to lower utilization of higher-cost specialists and redundant hospital visits.

“Primary care is best positioned for the big picture. Patients can disappear into the health system once they get referred to a hospital or specialist … and are bouncing around from specialist to specialist,” Reiner said.

The direct care model allows physicians to take charge of their patients’ care and reduces the need to care for a large volume of patients. The optimal number of patients is between 800 and 1,000, according to Reiner. The current number for fee-for-value service is about 2,500 patients.

But this model relies on the insurance providers to administer the plan and add wrap-around coverage for other health care needs. An alternative of the same model extends beyond primary care and into care for chronic conditions.

This is beneficial for larger employers or a band of smaller employers, according to EBG’s Solander.

docpreneur cropped-dp-calls-3-copy“There are ways to harness economies of scale to buying power for providers,” Solander said. An employer of, for example, 5,000, can say, “Look, I have a hard time controlling diabetes and asthma. Let me push that market share to you and, in return, we get better health.”

This allows for accountability directly from the health system for care.

“There is no insurance and risk other than losing the contract if a provider can’t demonstrate saving (the employer) about 20 percent or more, compared to insurance costs,” Solander said.

“Employers always have the top three to four conditions that drive 60 to 70 percent of their cost,” Solander said. “If you have all millennials or it’s a tech startup where the oldest person is 32, then this isn’t great for you.”

Solander’s firm has discussed and advised some clients to really look into the direct care contract option.

Herschman said he has told clients across the spectrum about the model, but has most recently worked with manufacturers in the Southeast who have a large number of employees with back pain and musculoskeletal issues.

Ward Sanders, president of the New Jersey Association of Health Plans, said the idea of direct contracting is not new.

And not necessarily a good idea.

“Providers get excited about this stuff, and they have for years, but who has really made it work?” Sanders said. “At the end of the day … the middle man does something. Somebody needs to collect premiums, someone needs to pay claims, someone needs to ferret out fraud, and somebody needs to do HIPAA compliance with all this information. Someone has to do case management and someone has to do care management, someone has to have fraud investigative units, somebody has to do all those pieces.

“So, yeah, you can cut the insurance company out, but somebody still needs to do all those pieces, and, respectfully, the plans — since this is what their businesses are — are pretty good at doing it.”

Herschman is undeterred.

“We see an uptick of employers moving into this model,” he said. “Employers see success elsewhere and are starting to dip their toes in the water.

“There is a lot of talk about it. The talk is growing and it’s … (that) this is going to be one of the next big things. Word is going to get out of saving money and then it’s going to snowball. It’s going to happen more in local markets with health systems (merging) and word is going to start getting around. How soon that will happen, I don’t know.”

The model especially benefits employers whose employees are centrally located in one region, served by one or two hospital systems, Solander said.

With employers keeping their eye on the Affordable Care Act’s Cadillac tax in 2020, which will penalize high-cost health care, Herschman said, “This is the next frontier and it’s starting behind the scenes.”

SOURCE: http://www.njbiz.com/article/20160217/NJBIZ01/160219815/cutting-out-the-middle-man-direct-provider-contracts-bypass-insurers-to-link-employers-hospitals?utm_content=28687244&utm_medium=social&utm_source=linkedin

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