For Medical Providers: Direct Contracting Offers Vital
Advantages
HMOs, PPOs, and carriers control the means by which medical
providers do business with employers. Physicians and hospitals have
been forced to accept adversarial contracts, dwindling
reimbursements, and greater practice restrictions. Cutting out the
middleman and contracting directly with employers is a viable
alternative that every medical provider should consider.
Advantages of Direct Contracting >
The Process of Direct Contracting >
Consulting Services for Medical
Providers >
Advantages of Direct Contracting
Though managed care middlemen don’t want medical providers
to know it, direct contracting offers many distinct advantages:
1. Win-Win Agreements
Unlike typical managed care agreements with dozens of pages
of small-font legalese to protect the middleman's interests, direct
agreements are generally short, readable, and protect both parties'
interests. Middlemen never disclose the terms of provider agreements
to employers, nor the terms of the employer agreements to providers.
Direct agreements fully disclose all financial and contractual terms
to both parties. Nothing is hidden, so both parties win. Back
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2. Healthier Reimbursements
Direct agreements compensate the physician fairly without
compromising potential savings for the employer. Reimbursements
can be based upon reduced fixed fees or simple discounted fee arrangements.
Since there’s no middleman "cut" or monthly network
access fees, overall costs are typically lower than commercial networks,
so employer-owned networks can actually save claim dollars and reduce
plan costs, while still providing higher physician reimbursements. Back >
3. Opportunity to Negotiate Better
Deals
When carriers set immutable contract terms and formulate
standard pricing models, they deviate very little from them. Their
inflexibility and "take-it-or-leave-it" fees make it impossible
for physicians to negotiate specific procedure code reimbursements
(most important to their own practices) without negotiating the
entire fee schedule, formula, or methodology. Direct contract negotiation
establishes a working relationship that’s no different than
any other buyer-seller transaction and allows for reasonable “give-and-take”
on contract and reimbursement terms. As such, physicians who have
awareness of practice costs and needs, knowledge of prevailing reimbursements,
and percipient negotiating skills should be able to negotiate better
deals directly with the employer than with the managed care middlemen. Back >
4. Stronger Steerage to Network
Providers
By owning the network and controlling the health plan,
employers can more effectively direct, or steer, employees to network
providers. Direct networks are designed to meet specific employer
needs in designated employee locations, so providers can accurately
anticipate prospective patient volume and can ultimately count on
the employer's support. Managed care companies build networks first
and then try to fit employers into them, completely disregarding
conflicting employer needs, and creating steerage inconsistencies
and service problems. Back >
5. Fewer Restrictions on the
Practice of Medicine
All health plans nowadays include some cost-containment
features, a fact emphasized by strict administrative requirements
in conventional managed care agreements. Direct agreements, however,
generally have fewer limitations on what doctors can and can't do
within sound medical judgment, so there’s less “nit-picking”
of the details. Commercial networks use restrictive contract requirements
to micro-manage the delivery of medical care to suit their own bottom
line. For directly contracted employers and physicians, though,
the bottom line is always the patient's health. A direct relationship
creates and sustains the employer’s ongoing support of physicians’
medical decisions, not the continual questioning of them. Though
employers do want to save money, their biggest concern is for employees
to always receive the necessary medical care when and where they
need it. Back >
6. Less Staff Time and Resources
Spent on Administration
Because direct contracts contain fewer rules, restrictions,
forms, and filing requirements than conventional HMO and PPO agreements,
and are usually based upon simpler self-funded plan designs, office
staffs don’t waste time figuring out what is and isn't covered;
what can and can't be done; and who to call with problems. Considering
the time typically spent by office staffs on administering multiple
(and sometimes conflicting) managed care agreements, every replacement
of a commercial agreement with a direct agreement can result in
a huge savings of staff time and, therefore, money. Direct access
to the employer (the ultimate payer) also facilitates quicker problem
resolution and makes for a more productive working relationship. Back >
7. Welcome Change from Commercial
Managed Care Agreements
Physicians express approval of direct contracting for many
reasons, but mostly because direct agreements are not HMO or PPO
agreements. Direct contracts straightforwardly establish a beneficial
business relationship between physician and employer, making these
agreements a welcome and revitalizing change from the complex, contentious,
and one-sided contracts often forced upon providers by managed care
middlemen. Back >
The Process of Direct Contracting
The inherent advantages of direct contracting make it a strong,
stable, and valuable source of patient revenue. The entire concept
of direct contracting has been obfuscated by other managed care
issues, so it’s understandable that practice managers, physician
management firms, and consultants often overlook its potential in
lieu of traditional middleman approaches. But, because direct agreements
can prove to be a vital part every practice’s managed care
mix, physicians themselves should initiate a closer look at the
process of direct contracting:
1. Review Current Managed Care
Agreements
In approaching direct contracting, physicians should first review
their current managed care contracts and decide which ones are financially
or administratively disadvantageous. The willingness to cancel,
or not renew, detrimental contracts provides important impetus,
especially when the self-insured employers represented under those
contracts can be approached directly. Physicians should also consider
as potential direct contracting prospects those local self-insured
employers that offer managed care benefits, but are dissatisfied
with the service, or have little or no access to physician networks.
Employers generally welcome direct agreements with physicians when
other options are unavailable, especially when it helps solve service
or access problems, or activates managed care benefits for employees
who would otherwise have none. Back >
2. Replace Disadvantageous “Middleman”
Agreements
According to the widely publicized Commonwealth Fund Survey
of Physicians’ Experiences with Managed Care conducted by
Louis Harris and Associates, 90% of American physicians surveyed
have managed care patients and half of physicians are contracted
with five or more managed care plans. It’s impractical, at
best, for any physician to consider replacing all existing managed
care agreements with direct contracts. Well-run commercial networks
that offer reasonable physician contracts, reimbursements, and service,
while providing employers with adequate savings and service should
be retained. But, direct contracting should always be considered
as a replacement for and an alternative to those agreements that
are not serving the physicians’ best financial or professional
interests. Back >
3. Understand the Response of
Carriers and MCOs
Though direct contracting is gaining momentum among physicians
and employers, insurance carriers and managed care middlemen are
often too busy with their own problems or profit motives to pay
much attention to direct agreements. Those who do notice, tend to
oppose it because, as middlemen, the whole concept of direct contracting
cuts them out of the picture. Employers and physicians who raise
the topic with commercial HMOs, PPOs, or insurance carriers usually
encounter resistance to direct contracting or find they’re
being talked out of it. Back >
4. Determine Whether Current Agreements
Restrict Direct Contracting
Since commercial managed care agreements are specifically
written to first protect the middleman's interests, they may include
a clause that prohibits the physician from contracting directly
with employers. It’s strongly advised that physicians never
to sign an agreement containing such a clause or to negotiate the
clause out. The employer’s HMO or PPO agreement may also prohibit
direct contracting, even after the agreement is terminated. Employers
should be discouraged from signing such agreements as well. The
bottom line is that employers and physicians should always retain
the right to contract directly with each other, regardless of other
arrangements in place. As with any other agreement, it’s also
advisable to have a legal review of any final documents.
Back >
5. Acknowledge Any Potential
Conflicts of Interest
There’s no reason why a physician, group practice,
or IPA shouldn’t approach local employers with the offer of
a direct contract, but, from a practical standpoint, contacting
employers directly may appear as a conflict of interest with other
managed care arrangements. Carriers, HMOs, and PPOs may be actively
seeking as client the same employer with whom the provider is seeking
a direct agreement. It’s always preferable for the employer
to initiate direct contracting through a company representative
or experienced direct network consultant.
Back >
6. Demonstrate Willingness to
Contract Directly, Even for Few Employees
By demonstrating willingness to contract directly with
employers, even for few employees, physicians send a clear message
that they want to maintain control of their own interests while
helping to serve the needs of their corporate neighbors. The decision
to contract shouldn’t be based solely on potential patient
revenue, but should focus on whether the concept of direct contracting
makes business sense. True, the upside may not be huge when few
employees are involved, but there's virtually no downside to a direct
agreement either. Remember, even in captive patient markets where
doctors will get the patients with or without managed care, the
only way employers can offer employees managed care benefits is
through a network of contracted physicians. For doctors who disdain
commercial managed care, the direct agreement guarantees that the
employer won't have to turn to a commercial network to gain managed
care access for employees. Back >
7. Establish Balanced & Reciprocal
Contract Terms
While it’s impossible to state all necessary contractual
terms here, physicians should look first and foremost for balance
in the agreement and mutually beneficial financial terms. The best
direct contracts are short (five pages or less), concise, and establish
a strong working "partnership" between the parties. They
clearly acknowledge the health of the patient as the ultimate concern
of both the employer and physician. A direct “win-win”
agreement provides written assurance of the reimbursement; timeframe
for payment; and exact terms for the provision of plan benefits
and processing of provider claims. Given the interminable claim
processing delays and service problems that physicians suffer daily
with commercial carriers, HMOs, and PPOs, the simple, yet effective,
terms of the direct agreement are a welcome change. Back
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8. Recognize Employer’s
Decision-Making Process
A local employer may show considerable interest in a direct
agreement, yet decisions on such matters may not be made locally.
A corporate benefits department elsewhere often determines how and
where networks are offered to employees. They may assume that if
their MCO doesn’t already have networks in certain areas,
none are available. Where networks are available, the employer may
be oblivious to physician dissatisfaction with those networks and
their subsequent receptiveness to direct contracting. Most corporate
benefit executives have no experience with direct contracting, and
rely heavily on advice from commercial carriers, HMOs, or PPOs.
As such, they may be unaware that direct contracting is a completely
viable alternative wherever employees need managed care networks.
Physician support of and willingness to participate in direct agreements
can bolster this viable alternative to the decisive advantage of
both parties. Back >
9. Support & Promote Employer
Efforts to Contract Directly
HMOs, PPOs, and insurance carriers wield an enormous influence
over clients (the employers) and physician networks. Eliminating
the middleman to gain the advantages of direct contracting requires
employers and physicians to actively pursue each other as business
“partners” in the managed care equation. While the onus
may still be on the employer to initiate the process, physicians
can do a lot to help local employers understand the value of direct
contracting. Through informal means, as well as through personal
and professional relationships with key corporate executives, physicians
can actively target strategic decision-makers at each major employer.
Whether it’s the CEO, CFO, or VP of Human Resources, physicians
can introduce the concept of direct contracting and express their
desire to negotiate “win-win” agreements. The employer
can then initiate the actual process without jeopardizing the physicians’
position with other MCOs. It’s also advisable to refer employers
to a qualified direct contracting consultant who can assist in the
planning and implementation of the employer networks. Back
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Consulting Services for Medical
Providers
As a pioneer and leader in the field of direct managed care contracting,
A.J. Lester & Associates offers physicians, hospitals, and other
medical providers expert consultation on developing direct agreements
with employers and regaining control over the practice of medicine.
We offer medical providers the following consulting services:
- Review and evaluate existing marketing efforts to determine
existing opportunities for direct contracting.
- Analyze current managed care contract participation in HMOs,
PPOs, and other third party payor networks.
- Analyze contractual and reimbursement terms of current managed
care contracts, assessing the value of each contract to provider.
- Identify potential contractual and market obstacles to direct
contracting. Recommend actions to overcome them.
- Develop strategies and action plans for implementation of direct
provider agreements and integrated marketing plans.
- Instruct medical providers’ staffs in the art of direct
managed care contracting.
- Develop boilerplate agreements for use in direct contracting.
- Identify employer market and viable direct contracting candidates.
- Analyze managed care agreements solicited by HMOs, PPOs, and
other managed care vendors. Recommend proper course of action
(accept, reject, negotiate, etc.).
- Represent medical provider in actual negotiation with commercial
managed care vendors. Note A.J. Lester & Associates cannot
represent medical providers in any negotiation directly with employers.
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