By negotiating directly with healthcare providers, employers cut health insurers out of the loop, at least for certain specified healthcare conditions and surgeries
It’s a new trend in how employers provide healthcare benefits for their employees. In order to save money, a growing number of employers are going to low-cost hospitals, physicians, and other providers to contract directly for their services. This may be the opening that allows some clinical laboratories to approach larger employers in their region and negotiate pricing and contract terms without the need to involve a health insurer.
What’s motivating more employers to reach out and contract directly with low-cost healthcare providers is the realization that their health insurance plan typically pays much more than Medicare to hospitals, physicians, clinical laboratories, and other ancillary providers. This fact is supported by a study conducted by the Rand Corporation that found “large employers generally lack useful information about the prices they are paying for healthcare services,” and that of the 1,600 hospitals in 25 states that Rand surveyed, “employer-sponsored health plans paid hospitals an average of 241% of what Medicare would have paid for the same inpatient and outpatient services in 2017,” which is up from 236% of Medicare in 2015, Modern Healthcare reported.
Thus, to better control the skyrocketing cost of healthcare, and the health benefits plan they offer their employees, employers are increasingly turning to self-coverage and implementing company benefits plans that reward employees for price shopping and for selecting the lowest costs healthcare services.
This trend is another reason why clinical laboratory leaders should be tracking changes in federal price transparency requirements, along with the increased consumer interest in accessing healthcare prices in advance of service.
Employers Negotiate Directly for Healthcare Services
Over the past decade, Dark Daily has repeatedly covered expanding federal price transparency legislation and the trend among large employers to self-insure and negotiate with hospital networks for discounted healthcare services for their employees. Most recently in, “Ohio Healthcare Network Serving Amish and Anabaptist Communities Could Provide Blueprint for Hospital Price Transparency,” and “Amazon Care Pilot Program Offers Virtual Primary Care to Seattle Employees; Features Both Telehealth and In-home Care Services That Include Clinical Laboratory Testing.”
Innovative employer plans to decrease healthcare costs include:
- Contracting directly with medical providers,
- Opening primary care clinics within their corporate facilities,
- Referring employees to contracted providers for certain procedures, and
- Creating bundled-payment deals with select providers.
Modern Healthcare reports that both public and private employers in five states (Colorado, Connecticut, Michigan, Montana, Texas, and Wisconsin) are “considering or launching group purchasing initiatives with narrow- or tiered-network plans, onsite primary-care clinics, and contracts with advanced primary-care providers,” as well as “direct-contracting with providers, such as referring employees to designated centers of excellence for some procedures and conditions under bundled-payment deals with warrantied results.”
Cheryl DeMars, CEO of The Alliance, a Wisconsin healthcare purchasing cooperative, says there is a movement afoot. “I’m seeing a level of boldness on the part of our members that I haven’t seen before in my 27 years here,” she told Modern Healthcare.
Self-insured Employers can Reduce the Nation’s Healthcare Bill, says KFF
A 2018 US Census Bureau report states that more than 181 million people in the US were enrolled in employer-sponsored health plans in 2017, and that the estimated average premium for employer-sponsored family coverage increased at an annual rate of 4.5% from 2008 to 2019.
That increase was approximately twice the rate of overall inflation and growth in average hourly earnings during the same time period, according to the report, which also states that the surge in premiums was driven by price increases for medical services and that use of most healthcare services among employees has actually been declining.
For US employers, “the steep increase in their healthcare cost crowds out financial resources that could be used for employee wage increases, capital investments, and other spending priorities, such as retirement plans,” the report notes.
However, an estimated 94 million of the 156 million workers in the US—approximately 61%—are currently covered under a self-insured medical plan through their employer, the KFF Employer Health Benefits 2019 Annual Survey states.
Healthcare.gov defines the self-insured health insurance plan as a “type of plan usually present in larger companies where the employer itself collects premiums from enrollees and takes on the responsibility of paying employees’ and dependents’ medical claims. These employers can contract for insurance services such as enrollment, claims processing, and provider networks with a third-party administrator, or they can be self-administered.”
Kirk Fallbacher, President and CEO of Advanced Medical Pricing Solutions (AMPS), told Healthcare Finance News (HFN) that the self-insured approach to employee medical coverage saves employers between 20% and 30% over a traditional Preferred Provider Organization (PPO), and that the savings total about $2,800 per person annually.
“It doesn’t signal the end of the insurance industry,” he said. “On the cost side of the equation, the PPO approach is beginning to come to an end. The costs are outstripping inflation and wages.”
Moving to self-insurance is another part of the current trend for price transparency in the healthcare industry and may offer opportunities for clinical laboratories to increase profits. Clinical laboratories and anatomic pathology groups might want to contact the Human Resources Departments of local major employers to educate them on the costs and quality value of their labs. Such a proactive and innovative move could encourage employers to include those labs in the provider networks of their self-insured health benefit plans.