Direct Contracting Is the Key to Bypassing the Payer

Meir Rinde
Published: Wednesday, Jun 01, 2016
Karen van Caulil

Karen van Caulil

Imagine treating patients without having to seek preauthorizations, argue with medical directors on the phone, or deal with an insurance company at all. It may seem like an impossible dream in the community oncology setting, but such a nirvana does exist—at one practice, at least – and healthcare finance experts say healthcare could be seeing more such arrangements in the years to come.

Under this alternative model, called direct contracting, a provider signs an agreement with a business or membership organization outlining the care to be provided and the payment scheme, cutting out the insurer completely. A 2014 survey by Aon Hewitt found that 11% of employers were using some form of direct contracting with hospitals or physicians, and 28% anticipated doing so within 3 to 5 years.

So far direct contracting is used mainly by very large companies that contract with hospital networks in areas where the firms have many workers. Boeing started contracting with two networks in Seattle in 2014 and last year added two more in Charleston, South Carolina, and St. Louis, Missouri, areas where it has tens of thousands of employees. Intel has a similar contract in New Mexico, and Walmart and Lowe’s have contracts with “center of excellence” hospitals for travel surgery.

In a few places mid-size companies or multi-employer coalitions have also engaged in direct contracting. In St. Louis, municipalities and utilities have contracts with Mercy Health, a network that also has agreements with Boeing and other large employers. Coalitions in Iowa, Minnesota, Wisconsin, and other states have helped their members set up contracts with hospital networks for two decades.

In addition to hospitals, practice groups have contracted with employers in some places. Karen van Caulil, president and CEO of the Florida Health Care Coalition, said her member employers have agreements for bundled payments for hip and knee replacements and for heart surgery. There appear to be very few oncology groups in direct contracting arrangements, though van Caulil said a provider network her organization will launch in January will include community oncologists, hospitals, and cancer centers.

Comprehensive Care Centers of Nevada (CCCN) in Las Vegas is a rare example of an oncology group that was able to enter into a direct contract on its own due to a set of unique circumstances, according to James D. Sanchez, MD, the practice president. The casino town has a huge, 57,000-member culinary union with a sophisticated understanding of health benefits issues, while CCCN has 50 physicians at 15 offices in southern Nevada and northern Arizona. The group has had a long relationship with the union, and the practice has access to US Oncology’s data analysis capabilities, which were needed to create a viable plan.

Sanchez said he initially approached the culinary union about providing more efficient bundled care for breast surgery patients through a direct contract, whereas the union wanted to get a handle on radiation oncology costs that varied from provider to provider.

Eventually the union suggested a contract for all the lines of service CCCN provides, which was signed in 2014 and is up for renewal at the end of this year, Sanchez said.

The contract uses a version of capitation, with the union paying a monthly fee during a member’s treatment that excludes drugs, he said. The union pays for drugs separately, and the practice agreed to curb use of very expensive therapies. CCCN has already been using clinical pathways for more than a decade.

For the union, the benefits of the deal include quality improvements and the cost predictability that comes from using one provider with a fixed fee structure, Sanchez said. He did not know how the deal has affected the union’s spending, in part because drug costs continue to rise.

He said the deal has not been a huge source of new profit for CCCN, but it has increased revenue and ensured a steady source of patients across the practice’s different lines of service, strengthening its financial stability. CCCN can also avoid many of the usual hassles of managed care, like payment and treatment plan denials. Disputes are hashed out in monthly meetings with union administrators, and practice staff spend less time pulling up medical records and filing endless prior authorization requests, Sanchez said.

“There’s been good transparency between ourselves and the culinary union. We share information, and we talk about any grievances that occur, without getting into shouting matches. It’s a very collegial atmosphere when we sit down and talk. There’s too much stress out there in healthcare, so this has been a great, low-stress, or no-stress type of an agreement,” he said. “The agreement also could be a springboard to possible other changes in contracting, both with culinary and as a platform we are considering using in contracting with other larger employers.”

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