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Growing Trend: Direct Employer Contracts with Healthcare Providers in the Self-Insured Industry

Gallagher Healthcare :: Industry Insights
By Cody Vicknair | 11/18/2013

While not a new trend, direct employer contracting with providers is rapidly picking up steam, particularly among self-insured companies. The arrangement can provide employers and healthcare providers with myriad benefits, but with these benefits come risks.

Before providers agree to enter into such an arrangement with employers or approach self-insured employers to discuss a partnership (if this allowable under a provider's contract terms with existing health plans), it is important to understand how the arrangement works, why it can work well for both parties and some the risks providers need to be aware of.

How the arrangement works: When a self-insured employer contracts directly with a provider, that provider becomes a part of the employer's network. Depending upon the arrangement, the provider may be contracted to provide employees with a narrow scope of services — such as services within a single specialty or specific types of procedures — or access to many or all of its services.

In the event that employees require medical services, their employer directs them to receive care from a provider, and sometimes a specific doctor, within the network that provides these services.

Why it works: Through this arrangement, both parties can benefit. Self-insured employers can reduce their costs in a few ways that include: 1) by negotiating the cost of services directly with the provider, employers can request savings through lower rates; and 2) by essentially removing commercial payers from the equation, this eliminates the fees associated with paying plans to put together networks and handle insurance claims.

In addition to achieving cost savings, the ability to choose which providers to directly contract with allows employers to research their options and identify high-quality providers — providers most likely to deliver care that will bring an employee back to work as soon as possible.

To earn these contracts, a provider will likely need to demonstrate the ability for its physicians and staff to deliver high-quality care and superior outcomes (supported by data) as well as be willing to offer savings to the employer. If a fair rate can be negotiated, and patients receive excellent care that does not require the provider to incur unnecessary additional expenses, providers that enter into these contracts can help capture new patient volume and the associated revenues needed to survive and thrive in an increasingly competitive healthcare environment.

Risks: While there are certainly substantial potential benefits for providers that can directly contract with self-insured employers, there are risks providers should take into consideration before entering into such arrangements.

These include the potential for increased liability exposure, issues with the Stark Law (since cases are being directed to a specific facility) and EMTALA, as well as the technical risks associated with bundled payment agreements and incident risks related to capitation agreements.

When considering these and other risks providers associated with directly contracting with employers, a provider would be wise to engage the services of a risk advisor prior to entering into such arrangements. A risk advisor can help ensure the provider follows proper risk management practices, maintains appropriate amounts of malpractice insurance and maximizes the benefits of the arrangement.

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