Can you cut out the middle man in insurance?

Direct provider idea links businesses, health systems

Imagine a world where doctors handed patients the bill directly. It sounds like the past, but it may be the future.

The concept is 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 outof-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 RHealth, 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.

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 feefor-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.

"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."

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 middleman 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.

"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," he said. "Word is going to get out of saving money and then it's going to snowball. "

It is, he said, the future.

"This is the next frontier and it's starting behind the scenes."

e-mail to: anjaleek@njbiz.com