Direct Contracting Is the Key to Bypassing the Payer

Oncology Business News®, June 2016,

Under 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.

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.”

CCCN has approached other businesses about establishing similar direct contracts but has yet to ink additional deals, he said.

As beneficial as the arrangement has been, Sanchez said it was hard to imagine many similar contracts being signed around the country, because large employers aren’t interested in talking to physicians from group practices. Robert Gamble, director of strategic practice initiatives at the Community Oncology Alliance (COA), said employers and oncologists barely even share a vocabulary to discuss healthcare, and physicians are typically leery of approaching their patients’ companies directly.

“For whatever reason, it’s just hard for them to say, ‘Oh, I need to talk to my employers,’” Gamble said. “We’ve suggesting things like, take them some coffee, take them some ice cream. Buy them some donuts. Get to know them. When it happens, and you help nurture it and develop it, some great things can happen. But you’ve got to start there.”

That said, some savvy employers are motivated to bridge the divide with providers in the interest of improving the quality of care for their employees’ families at reasonable cost, said Cheryl Larson, vice president of the Midwest Business Group on Health, a large employer consortium. Larson, who spoke at COA’s annual conference in April, said that’s a different priority than many insurers have.

“In the health plan environment, they’re often driven by pressures from the average employer, who is focused only on cost savings,” Larson said. “More progressive employers recognize the importance of high quality, and they’re willing to pay a little more for better quality.”

Cost does matter to employers, but not at the expense of quality care, she said. Meanwhile, participating providers may or may not see higher profit margins, but they can gain more business, reduce some costs, and achieve other benefits by dealing directly with employers, she said. “From my perspective, it is not about the community oncologist making more money. It’s about them providing the best care they can and getting a consistent revenue stream instead of being nickel and dimed all the time by the managed care community,” she said.

Smaller community practices will have a tougher time taking advantage of such opportunities, especially if they are not located in an area with a high density of patients from large, self-insured employers, Larson said. Oncology is also difficult because of the many different types of cancers and treatments, which require more complex facilities and contract terms than a straightforward service like knee replacement, she said.

To overcome those barriers, groups like COA could help practices in a geographic area band together to create networks that provide a set of services and quality-improvement systems that are attractive to employers, Larson said.

In places where direct contracting is a possibility, there are several issues providers and employers must consider first, and a few key steps to take. The first, possibly lengthy step for the practice is to create a good ongoing relationship with the owner of a self-insured company that has many workers served by the provider, Sanchez said. The goal is to get the employer to start thinking about the cost and quality of the employee healthcare they are paying for, and the potential for improvements.

“Exploring direct contracting opens the door between employers and providers for discussions about cost, quality, and patient satisfaction that typically do not occur with the health plans in the middle,” van Caulil said. The practice then needs hard proof, in the form of data or experience with clinical pathways, that it can provide the promised benefits, Sanchez said. It has to be able to do a business analysis of the potential patient population and pay rates to formulate a financially realistic proposal, which may require depending on consultants or a partner like US Oncology. The employer must in turn have a business office that can process and monitor financial and possibly clinical data.

“Direct contracting is not easily accomplished, because it takes the insurance company out of the equation and the mechanics of the direct relationship must be worked out,” van Caulil said. She cited claims processing as an example of a responsibility the employer must take on. Employers also need to make sure their existing network agreements allow them to do direct contracting, redesign their benefit plans, and develop a communication plan for employees and families, as the new arrangements will likely be different for them, she said.

Gamble, who managed a cancer center for 13 years, said the contracts themselves are not difficult to set up. They need to include timeframes, he said; for example, a provider must send the employer a claim form within 48 hours after seeing a patient and the employer must pay claims within 10 days. Employers should process payments the way they handle any other invoice. And contracts must lay out the process for exchanging and reconciling information on the treatments provided and a system for measuring outcomes and patient satisfaction, Gamble said.

Aon Hewitt 2014 Health Care Survey. human-capital-consulting/2014-Aon-Health-Care-Survey.pdf. Accessed 20 May 2016.