How Companies Can Leverage a Direct Contracting Model of Healthcare to Lower Their Costs and Improve Outcomes

What happens to the unused money paid into employee health premiums over the course of a year? Insurers neither reimburse nor incentivize employers to control the cost of their health care. Yet, year after year, money is paid into employee health plans never to be seen again.

January 26 2014 by Dr. Robert Haar


For many employers, the cost of insuring employees is one of their largest expenditures of the fiscal year and, with the Affordable Care Act, premiums are rising based on arbitrary government mandates that dictate the amount of coverage employers must provide. We have all seen employers both large and small discuss how these increased premiums will hurt their bottom line and some who have gone so far as to cut their workforces or employee hours so that they can fall out of the scope of the Employer Mandate.

Other employers self-insure their health plans and while they may or may not buy stop-loss insurance, the fact is health care costs are real money. These employers pay physicians and hospitals out of their own pocket and any money they save goes straight to the bottom line. Additionally, these self-insured plans are regulated under ERISA and therefore not subject to many of the mandates that became law with the passage of the Affordable Care Act.

In the last year, companies like GE, Walmart and Lowes have created innovative programs in an attempt to offset the rising costs of employee healthcare. Instead of paying dollars into premiums for their millions of employees, they have contracted directly with medical providers and arranged reduced rate contracts for both surgical and non-surgical services. Essentially, if employees are in need of care they have the option to travel to one of their affiliates and have the cost of their procedures paid for directly by the company. The cost savings seen by these companies has been in the millions. Even with the costs of travel, employers are willing to absorb these costs due to the contracted rates between the employer and medical provider. The employees themselves see an average savings of $5,000 – $12,000 as a result of being exempt from medical deductibles.

The cost-savings model is achievable. In New York City, we transitioned our practice, Regency Healthcare, into a cost-savings center by using transparent pricing for medical care. Our website, (www.RegencyHealthNYC.com) lists the price of a variety of orthopedic surgical procedures for cash pay patients as well as self-funded employers. The practice operates outside the confines of third party and government insurers and offers these prices via direct contract with employers across the country. The goal of this two-fold endeavor was to first eliminate the insurance and hospital intermediaries that drive up the cost of healthcare. Second, it was to allow businesses of all sizes to implement a cost savings model for employee healthcare using his “a la carte” model. The prices listed on the website fall well below those seen in area hospitals and are often priced lower than some insurance carriers deductibles. This cost savings model is achievable as a result of our owning the center and not having its price points subject to the bureaucracy typical of hospitals.

Historically, employers have allowed third parties and insurance companies to negotiate the rates they pay for actual health care. However, the direct contracting model puts employers and providers face to face for the first time in history. It is the first attempt at free-market healthcare and the potential is limitless. The commitment to price transparency promises to be a positive for employers and providers alike.