Cut out the insurance middleman?

More and more physicians are doing business directly with employers, but it's too soon to call it a trend.

By Ken Terry
Managed Care Editor

Internist Paul R. Fleury and his four colleagues—all internists or FPs—like contracting directly with Sysco and Perdue Farms, two local businesses that provide health insurance benefits for their employees. Not only are the doctors seeing more patients; they're earning substantially more under the direct contracts than they did from managed care plans. Through third-party administrators, Sysco and Perdue pay 135 percent of the Medicare fee schedule, while the health plans offer no more than 100 percent Medicare allowances.

Direct contracting has worked well for Fleury's Blue Heron Medical Group and for other physicians around the country, but that doesn't mean it's a panacea. Sometimes doctors don't make any more from employers than they do from health plans. And many employers use managed care techniques to hold down costs.

Still, direct contracting has a number of advantages—including additional patient volume, faster claims payments, better mechanisms to resolve payment problems, and the ability to pick up ancillary business from employers, such as worker's comp cases and pre-employment physicals.

Pocomoke City, MD, the Blue Heron group's hometown, is in a rural area where managed care hasn't yet made huge inroads. Before Sysco and Perdue formed a local physician network, they offered their mostly low-wage workers indemnity insurance that paid 80 percent of costs above a deductible. Because many insured employees couldn't afford the deductible, they tended to put off medical treatment until they were very sick, and then they'd often go to the ED or a specialist.

Now, under the PPO-like plans set up by Perdue and Sysco, workers can visit primary care physicians for a small copayment. Because of the increased access to primary care, the high copay required to visit a specialist without a referral, and the limitation in network size, Blue Heron's physicians are seeing a lot more of the companies' employees and dependents, and seeing some of them more often, says Fleury. The group now has about 800 patients through these direct contracts, which bring in approximately 7 percent of its total revenues.

Where direct contracting is growing

Employer contracts are most common in rural areas and small cities. In major metropolitan markets, the power of big health plans and the geographic dispersion of employees tend to discourage employers from going direct, but employer coalitions in Houston and Minneapolis are dealing directly with physicians.

A.J. Lester & Associates, a Houston benefits consulting firm that set up Perdue's and Sysco's direct contracts, has done the same for other self-insured companies in 28 states. These companies have from 3,000 to 40,000 employees in multiple locations.

A benefits consultant for a large national consulting firm, who spoke on the condition of anonymity, says he's set up direct contracts between employers and physicians all over the country. He claims to have received calls from 40 percent of the Fortune 200 companies.

Other observers doubt that direct contracting is on the upswing. "It's like purchasing coalitions: seemingly popular for a couple of years, then out of fashion, then back on the table," says John Erb, a Miami-based manager for Deloitte & Touche. "It's hard to point to any employer who's been successful with it."

According to a recent Deloitte & Touche survey, about 8 percent of US employers contract directly with providers. Excluding hospitals and other health care entities, notes Erb, "only 5 percent of employers do any direct contracting. And only 2 percent more are considering doing it in the future."

You might not make more or get paid faster

Direct contracting isn't always physician-friendly. In many cases, you'll get paid about what you earn from conventional health plans.

The Northeast Louisiana PHO in Monroe, LA, is a case in point. For the past four years, this organization has contracted directly with Blue Bell Creameries, an ice cream company with branches in several southern states. NLPHO has negotiated discounts with Blue Bell that vary from 27 to 32 percent for hospitals and from 15 to 25 percent for doctors, depending on specialty, according to NLPHO President Pam Ingram. Those discounts, she says, are comparable to what physicians give commercial plans in her area. The PHO's nearly 300 doctors are getting only 95 patients from Blue Bell, and only 1,000 from all of its direct contracts.

Claims aren't necessarily paid more quickly under direct contracts, either. Paul Fleury points out that the third-party administrator used by Perdue can't handle electronic claims. So, while his group submits about 90 percent of its claims online through clearinghouses, it has to send paper claims to the Perdue administrator—meaning that Fleury's receivables under this direct contract are as old as any he has.

On the other hand, direct-contracting practices and provider groups have better access to third-party administrators because of their relationships with the administrators' employer clients. "It's a lot easier for us to get a response if we have problems," says Fleury.

Ingram agrees. "If a doctor is shown out-of-network and he's in-network, it's very laborious to get a PPO to change it, as opposed to picking up a phone and calling the administrator or Blue Bell, and saying, 'Help us out here.' "

How much freedom do physicians have?

Fleury says his direct contracts call for less paperwork and jumping through hoops than managed care plans do. But according to Ingram, physicians in the NLPHO see no differences between the administrative barriers they encounter in PPOs and plans administered under direct contracts.

In neither case do patients require referrals to visit network specialists. Both kinds of plans, she says, discourage doctors from sending patients to out-of-network specialists, labs, or hospitals, because the patient has to pay more. And third-party administrators do some utilization review, just as health plans do.

Blue Bell's administrator in Houston, for instance, requires authorization for surgical procedures, says Ann Cook, former vice president and director of business development for University Care Plus, the faculty practice of the University of Texas Houston Medical School. And Blue Bell doesn't pay the 475-physician group any more than local health plans for taking care of its several hundred workers and dependents.

"PPO business is attractive to physician groups, and so are well-administered direct contracts," she says. "I can't say that we've found a major advantage or disadvantage in either one."

But for doctors who are fed up with managed care, direct contracting with employers could be the best way to say, "I've had it."

 

Ken Terry. Cut out the insurance middleman?. Medical Economics 2002;5:89.