Direct Contracting with Businesses by Family Physicians (Discussion Paper)

Background

The majority of family physicians still rely on the insurance-based model for their primary revenue stream. This includes commercial insurance and government sponsored health care funded through programs such as Medicare, Medicaid, the State Children’s Insurance Program, (SCHIP), and occasionally other local tax-based programs for the indigent. Some physicians in community based practices have been pursuing alternate business strategies to the insurance-based model.

The non-insured alternate strategies have included cash-based fee-for-service models, retainer, or direct contracting either between physician and patients, or between a physician and local business entities. This process of directly contracting with businesses in communities is evolving to include a more comprehensive level of service and new services. Both physician groups and individual physician practices are establishing relationships with local business entities.

Contracting directly with business entities and physicians is not a new phenomenon, but in the past it has often focused on business-related services, such as worker’s compensation. In this scenario, the services provided were limited and of a specific nature. Payment was typically pre-determined. The primary physician may or may not have been involved in a cost control strategy to assist the patients and the business in reducing or eliminating unnecessary expenditures.

Discussion

Family Physicians have often looked at direct contracting with businesses as a way to bypass the insurance industry’s control of the revenue stream. Historically, the physicians involved in direct contracting were organized into large networks of physicians and other health care service providers to meet the needs of large or medium sized businesses. The direct contracting initiatives of the past often involved the provision of on-going primary care and specialty care outside a traditional insurance program. In many instances the physician groups involved had difficulty organizing within the restrictive regulatory environment and competing with the ready access to providers available through an established competing insurance plan.

As costs continue to escalate within the insurance based model, opportunities to develop alternative strategies emerge. More family physicians are offering services to help businesses control unnecessary expenditures and reduce the administrative burdens associated with health insurance.

Following are several types of services that family physicians may offer:

  • A physician or group may offer wellness and preventive services or programs to businesses. Examples of such services are health fairs, flu vaccine programs, cancer screenings, or osteoporosis screening programs.
  • A physician or group may offer traditional worker’s compensation services under a direct contract.
  • A family physician may offer comprehensive primary care services for episodic illness and chronic care under a direct contract arrangement though their own clinic. These services may be offered at the family physician’s usual practice site, or a work site clinic may be established.
  • Family physicians may establish separate worksite clinics staffed by physicians or midlevel providers with physician oversight. Chronic care may be referred to the primary office or performed at the worksite clinic.

There are multiple benefits for both the employees and the employer under such arrangements. Services offered prevent employee absences from work for minor illness and for routine follow-up for on-going illnesses. The services may prevent unnecessary after-hours trips to the urgent care center or emergency room. Moreover the preventive care and chronic care services provide a usual source of care for patients who may not have an established site for care or a primary care physician. There is clear evidence that patients provided good primary care have better outcomes and less total expenditures than patients who are unguided in the current US healthcare system, and employers are beginning to realize this.

Physician payment may be based on some combination of:

  • A per employee per month fee that may vary depending on the size of the group and services provided.
  • A negotiated flat fee that covers the total cost, including fees for the physician or any midlevel providers involved in providing care.
  • There may be an additional co-payment paid by the patient.

This revenue stream does not involve the patient’s primary health insurance. The payments are made directly to the physician and he or she is not required to bill a third party administrator. This reduces the self-funded employer’s cost for this portion of employee health care, as the third party administrative charge is avoided (can be up to 30% of the total).

The types of services included are the usual services provided by family physicians, and may include episodic care, chronic care and preventive care. In some cases basic lab fees are also included (through the physician’s office laboratory or a negotiated discount between the physician and a commercial lab). Physicians who offer other ancillary medical services or in-office pharmaceutical dispensing can potentially add these to a direct contract with the self-insured employer. Additional preventive care services such as immunizations are often provided periodically at the work site.

For on-site clinics, the business may provide low cost or no cost real estate (facility). In other instances the employer may be responsible for funding the initial setup of a clinic facility and the ongoing real estate expense.

Physicians involved in these arrangements contend that the savings obtained by reducing claims expense to the company’s insurance policy more than offsets their expenditures on the physician’s services. This is especially true for companies that are self-insured and have a third party administrator processing the claims. Their overall utilization and cost of claims may be reduced and may provide them an advantage when renewing or renegotiating their insurance contracts.

The greatest hurdle for most family physicians to overcome in promoting this type of alternative strategy is the need for physicians or their representative to educate the business owner on the advantages and potential benefits of such arrangements and to prepare and negotiate a contract. (April Board 2010)