Employers Cut Insurers Out to Negotiate Better Health Costs

Large employers are entering deals directly with health systems that give them more negotiating power over rates and the quality of care, but regulatory questions remain unanswered.

The General Motors world headquarters in Detroit.
AP Photo/Paul Sancya
Aug. 13, 2018, 8 p.m.

Large employers are showing an increased interest in directly contracting with health providers—bypassing the typical arrangement that involves going through insurance companies—in order to negotiate better rates, lower costs, and improve the quality of care, experts say.

The trend is small but growing, jumping from 3 percent of large employers pursuing these contracts in 2018 to 11 percent in 2019, according to a recent survey by the National Business Group on Health. As these contracts become more commonplace, questions around how such arrangements should be regulated will likely be raised.

The latest company to strike such a deal is General Motors, which entered a direct-to-employer health care contract with the Henry Ford Health System. “Creating a linkage between providers and employers, GM ConnectedCare is designed to lower costs by improving the overall health and wellness of participants through a connected system with Henry Ford providers,” said Henry Ford Health System in the announcement of the deal Aug. 6.

Employers may be able to negotiate better deals than what health providers give insurance plans. “They’re not going to give the insurance company the greatest rate they possibly can because they know that they’re facing a lot of denials and so they have to account for that,” said Alexis Bortniker, a health care lawyer for Foley & Lardner.

Meanwhile, an employer can bring a set number of patients and guarantee payment, resulting in better rates, she added.

Cost saving is not the only upside for employers to sidestep insurance companies, experts say. For instance, this could help employers improve patients’ experience and outcomes in their health care, said Brian Marcotte, president and CEO of the National Business Group on Health, which represents large employers’ perspectives on health policy issues.

“This isn’t just a cost play,” he said. “This is really a better-delivery-model play. It’s trying to improve the consumer experience, ensure that it’s a quality solution, that there is really good care coordination, and all of that will lead to a better outcome and therefore a better cost outcome.”

Intel, for example, reported after one year in its direct contract with Presbyterian Healthcare Services that outcomes related to diabetes showed “statistically significant improvement in the percent of diabetics whose biometrics indicated ‘good control’ of their condition.” The health system had covered the total cost of diabetic medications along with treatments of other conditions.

Typically, large employers in self-funded plans assumed most of the insurance risk “but have had very little control over how health care is delivered,” wrote researchers in a 2017 National Academy of Medicine discussion paper on payment reform.

“Employers are hopeful that as financial risk becomes shifted to providers, increased innovation and competition will ultimately lead to overall reduced costs and better health outcomes for beneficiaries,” the report states. “And, when risk is shared jointly among groups of providers, providers will be more likely to deliver coordinated, integrated care.”

This arrangement, however, would likely not be beneficial for all companies. “I think smaller employers are going to have a really hard time because obviously it may not be worth the time. To a certain extent there’s a lot of process involved and just going through a health plan is easier,” said Bortniker.

Companies eyeing such contracts need to ensure they have the “expertise, the sophistication, and the bandwidth,” said Suzanne Delbanco, executive director of Catalyst for Payment Reform, a group that helps employers make decisions about their health plans and promote the shift to value-based care.

“It’s a lot of work just to come up with a criteria for selecting who you want to work with,” she said. “You have to interview them, you have to go through a huge process and once you have that relationship you have to manage it. It’s a lot of added work.”

But as health systems and employers enter more of these agreements, regulatory questions may arise. “I think there are questions about what are some issues that you might need to think about from a regulatory standpoint, if you have these risk-based provider organizations, to protect consumers,” said Katherine Hempstead, senior policy advisor at the Robert Wood Johnson Foundation.

Hempstead noted that insurance companies are regulated by states to make sure they can handle the amount of risk they are taking on and suggested provider groups may eventually be assessed the same way. “Ultimately it could be a question that some states might start to ask that organizations show a little bit of evidence that they’re actually not getting in over their heads,” she added.

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