Physicians Contract with Self-Funded Employers

Some medical practices are cutting out insurance companies and providing services directly to employers (direct care), thereby reducing overhead and cost to patients.

First, let me define what is meant by "direct care." Similar to charging patients cash for your services, the difference here is that you are charging employers directly for services delivered to their employees. There is no middle-man insurance company; simply two parties exchanging cash for services. So "direct" here means that you, the physician, are selling your services directly to the purchaser of healthcare, the employer.

This is not as novel an approach as you might think. Employers, particularly those that are "self-funded" (meaning those that carry the financial risk for employee claims rather than the insurance company), have already been investing in medical tourism for years. They contract directly with providers of care overseas (or through medical tourism companies) and send employees for such services as bariatric surgery, knee and hip replacements, and hernia operations, which are far less expensive than here in the United States. Even some insurers, like Anthem Blue Cross and Blue Shield, are exploring the idea of including medical tourism as a part of their coverage.

Out of the payments made to physicians, practices must cover the high overhead cost of participating with insurers - administrative chores as prior authorizations, submission of medical notes, and billing out claims which take time to get paid or they may be denied altogether and go unpaid.

Direct care takes the administrative cost and risk out of the equation for physicians, allowing them to offer services directly to employers at a reasonable rate. In addition, with no restrictions to conform to insurance companies' narrow rules and lean payments, physicians are able to offer expanded care and more sophisticated programs at a defined price covering all aspects of care.

The direct primary-care (DPC) model offers primary-care physicians and patients an alternative to fee-for-service insurance billing, typically by charging a monthly, quarterly, or annual fee that covers all or most primary-care services including clinical, laboratory, consultative services, and care coordination and comprehensive care management. Having a defined amount to spend on primary care helps employers to lower financial risk and accurately budget for that expense annually. Physicians receive the benefit of cash payments at set intervals without the expense of supporting insurance participation. For more information about this type of model, you can go to http://www.dpcare.org.

It doesn't stop at primary care. Employers are looking for bundled-case-rates for common surgeries and if they can utilize a local physician to perform that at a competitive rate, they are less likely to go the medical tourism route because it gets the employee back to work more quickly. Physicians can explore these offerings directly with employers or through companies that connect self-funded employers to physicians best-suited to provide necessary care, at a pre-negotiated amount. The service is considered an add-on benefit to employees' existing insurance coverage. While these companies act as the "broker" for these services, it can be a good way to start a direct-care practice model.

Physicians connecting directly with employers to offer services outside of their insurance offerings typically meet the following criteria:

1. The physician and/or the facility cannot both participate with an insurance plan and also sell services directly to an employer. Being out of network for that employers' plan is required, otherwise that would be in breach of the insurance contract. Services need to be packaged up into one all-inclusive price per procedure or type of service. So for a knee replacement, a physician's price will need to include all aspects from the initial work-up through physical therapy in order for the employer to want to take advantage of this direct-care model.

2. The goal is for the employer to save some money by working directly with the physician, but also, for the physician to make more money than he would by participating with an insurer. Therefore, when calculating pricing, be sure to assess how much you would save by not carrying the administrative burden of insurance participation - by some estimations, this is somewhere between 14 percent and 27 percent of revenue. (Health Affairs, July/August 2009, vol. 28 no. 4, 544-554.)

3. Your program should offer value-added benefits that competitors lack, such as the level of service and access that patients receive and the focus on optimal outcomes through care coordination and effective follow-up care.

4. With more and more employers becoming self-funded to avoid steep increases in costs, and the intense focus on deriving value from the healthcare dollars spent, many are interested in alternatives to traditional insurance. This makes the market ripe for disruption by physicians who are savvy enough to see where the market is going and take back healthcare for themselves.