Cost-containment of employee healthcare benefits has never been more critical. In a year where the COVID-19 pandemic has caused economic turmoil, thought-leaders such as the Harvard Business Review are encouraging employers to treat benefit costs with the same "rigor and expertise that they assess other major expenses." That's because employee health benefits typically outpace inflation and consume more than $15M annually per 1,000 employees, writes Vivian S. Lee.

Even before the pandemic, the Kaiser Family Foundation estimated that healthcare coverage for a family of four was $20,576, a 54% increase over 10 years. The top two concerns of most larger U.S. companies are benefits cost and the ability to attract talent. And it's fair to say the two are directly connected.

So how does a company offer high-quality benefits to keep its workforce healthy while controlling the cost? One relatively new approach is "Direct Contracting."

Direct-to-provider contracting is a strategy in which a self-insured company negotiates a contract directly with a provider of healthcare services with the goal of driving value-based care. Health care purchasers may also opt for this approach in circumstances where they want to customize the health care they procure, which may be difficult to do through an existing contract with a health insurance plan.

Just as you negotiate contracts for products and services for your company, the same opportunity exists between employers and healthcare providers. The goal of direct contracting is to lower overall costs by improving pricing transparency and streamlining the delivery of quality care.

To achieve a good, synergetic partnership, a direct-contract relationship needs to be both mutually-beneficial and geographically sustainable. Providers need to see an opportunity to increase volume from employers through a narrower network. Employers need to see an opportunity to more directly influence the delivery and costs of healthcare. The majority of employees should be in the geographic area of the providers.

For this reason, size and locality influence the viability of a good pairing.

For example, an innovative program that BHS helped bring to life leverages direct contracting between Grand Rapids Metro-based companies and University of Michigan/Metro Health network. However, the plan, called Metro Care, isn't necessarily a fit for companies with a majority of employees living in the Lakeshore area, since the majority of the Meto Health Network services are offered in Kent County. For companies with the majority of employees within Kent County, it can be an ideal example of a direct-contracting.

Direct contract pricing improves transparency and also helps eliminate dramatic price variance that is the bane of high claims cost. Procedure costs can vary as much as 1,000 percent across facilities, with little to no rationale provided by many healthcare facilities.

Research shows higher costs of care don’t correlate with higher quality. In fact, higher costs are often associated with lower quality ratings.

It’s common for employees to find that their physician can perform a procedure at a different facility for a significantly lower cost. Hospitals tend to charge more for these procedures, while outpatient and independent surgery centers charge less.

Benefits programs that are structured to include tiers where the first tier is a direct-contract network give employees the freedom of choice, but also incentivize wise selection.

For example, a JAMA study showed that patients with access to pricing information opted for the lower cost services, resulting in a 14 percent reduction in lab test costs and 13 percent reduction in imaging costs.

A successful direct contract solution is the outcome of synchronizing several moving parts that are facilitated by collaborative benefit design. Those elements include:

• Proven direct contracting negotiation and setup experience
• Data analytics that determine direct contracting viability and effectiveness
• Ability to integrate direct contract claims into medical plan reporting
• Coordinate with your stop-loss vendor for potential reimbursement
• Network development and maintenance personnel
• Transparent payment structures

BHS is home to a team of specialists that can help companies deploy strategic direct contract solutions to contain costs.