Winning Direct Contracts with Employers

Pacific Business Group on Health uses an extensive process to identify, evaluate, and contract with health systems in its Employers Centers of Excellence Network.

Direct contracting between self-insured employers and health systems continues to gain steam, and the contracts are being offered to a growing range of provider organizations.

Pacific Business Group on Health (PBGH), a membership organization that includes many of America’s largest healthcare purchasers, is a leader in direct contracting through its Employers Centers of Excellence Network (ECEN). On behalf of four of its members—WalMart, Lowe’s, McKesson, and JetBlue—PBGH identifies, evaluates, and negotiates bundled-payment contracts with health systems for specific elective procedures.

In each case, the employer offers incentives—typically, it pays travel expenses for the patient and a companion and waives the patient’s deductible and coinsurance—to encourage its workers to travel to a Center of Excellence for a given procedure.

The employer’s motivation is improved value. All ECEN contracts are designed so that the employer will, at worst, break even despite the travel costs and care management expenses associated with these arrangements, says Olivia Ross, associate director of the ECEN. But the real financial win comes from improved outcomes.

“There are huge savings from the improved quality—fewer revisions, fewer readmissions, fewer infections, faster return to work, lower after-care costs,” she says.

Provider organizations in the ECEN benefit from new patients coming from outside their traditional market. The four joint replacement Centers of Excellence have performed more than 1,200 ECEN surgeries since the program began in January 2014.

The ECEN expects each center to invest significant resources in the program and to understand—and respond to—the unique needs of the patients referred by the ECEN. Thus, it limits the number of facilities that receive ECEN contracts.

“We want to make sure the volume is enough so that providers feels it’s worth all the work that we ask them to put into this,” Ross says.

Although only seven health systems have signed ECEN contracts, dozens have participated in the review process to be considered. That process allows provider organizations to gain experience with value-oriented payment approaches.

“They know this is where healthcare is headed, and they are being asked to think more about their efficiency and quality,” she says. “So even if they don’t move forward with us, going through the evaluation process is an opportunity to explore prospective bundles and to think about whether there is a local employer they want to approach about direct contracting.”

Identifying Potential Provider Candidates

In partnership with ECEN program administrator Health Design Plus, PBGH developed an extensive process to identify and evaluate health systems that might be appropriate for an ECEN contract. The first step—building a list of potential systems to evaluate—has two components.

Conduct a scan to identify potential provider candidates in a specific geographic region. PBGH wants to contract with the highest-value providers in the country, but geography does play a role in decision-making. If an employer has a large number of workers in a certain area, having a Center of Excellence nearby makes financial sense.

Thus, PBGH is targeting regions such as Charlotte, N.C., where the current participating employers have large concentrations of employees, Ross says.

Collect and review publicly available data. PBGH staff gathers a wide range of information—including U.S. News & World Report rankings, Hospital Compare data, and participation in the federal government’s Bundled Payments for Care Improvement initiative—about each potential candidate.

Ross acknowledges that health system rankings can be misleading and even contradictory, but the picture painted by all the public data taken together provides a starting point.

“If we see someone who is not standing out anywhere across the board, we are not moving forward with them,” she says.

In the case of bariatric surgery, PBGH gathered public data on more than 60 provider organizations. After reviewing that information, it chose to contact 16 providers to discuss the ECEN opportunity and request information such as.

• Is emergency care and access to specialty care available 24/7?
• Does the system meet PBGH’s minimum volume standards for a given procedure?
• Are at least two surgeons available to provide the specific surgery type?
• Will the system be willing to share a great deal of information about outcomes—including surgeon-specific data—and costs to support PBGH’s evaluation process?
• Is the system willing to contract for prospective bundled payments?

PBGH finds that most health systems that receive a request for information (RFI) are willing to take the initial step of evaluation. Nearly all of the 16 systems invited to submit information for the bariatric surgery program did so.

Evaluating Candidates

If a health system’s responses to the RFI are acceptable, a non-disclosure agreement is signed so the following steps in a formal evaluation can begin.

Team assessment call. Health system leaders and the PBGH evaluation team meet one another via a telephone call. In addition to Ross, PBGH is represented by the ECEN coordinator, the ECEN medical director, and a member of Health Design Plus. The health system team must include a surgeon in the appropriate specialty, a service-line director or other operational leader, and a member of the finance or contracting staff.

The ECEN team uses a semi-structured interview to determine whether PBGH and health systems are philosophical matches.

“Do they understand what we mean by value? Do they understand what we mean when we say, ‘tell me how you determine if a candidate is appropriate for surgery’?” she says. “We want to hear that there is a multidisciplinary group making that assessment. We want to hear about how the patient is involved.”

After the call, the PBGH team must agree unanimously on a health system’s merit for it to move to the next step. For bariatric surgery, PBGH completed nine team assessment calls, and five systems advanced to the next level of evaluation.

Request for proposals (RFP). Candidates are asked to supply a vast amount of detailed information, including patient education materials, clinical protocols and performance data for about 15 metrics at the facility and surgeon level. Other questions include: 

• What electronic health record system is used and is it integrated across the system?
• If anesthesiologists, physical therapists or other clinicians are independent from the system, what is the working arrangement?
• How will the health system communicate with patients remotely?
• What is the proposed rate for the defined bundle of care, including clinical care and travel between the patient’s hotel and the hospital?  (Airfare, hotel, daily stipends, and other aspects of travel are managed by Health Design Plus and paid for by the employer.)

“This is the first time we are talking about money, so they have gotten through a lot of quality hurdles before we even want to talk about pricing,” Ross says.

Proposal evaluation. The PBGH team has standards for the overall facility, the specific clinical area pertaining to the care bundle, and patient experience. “Candidates have to meet our criteria in every section,” Ross says. “It’s not like there’s 100 points, and as long as they get 80, they move forward. Each area has to be strong.”

In some cases, candidates will be given the opportunity to improve their proposals when PBGH identifies specific weaknesses that could be fixed.

Site visit. The evaluation team—PBGH staff, Health Design Plus staff, and the ECEN medical director—get walk-throughs of all the processes patients would experience. That means staying at the same hotels, using the same facility entrances, and visiting with frontline staff without health system leaders present.

“I’ve been able to chat with nurses at every one of these centers and say to them, ‘Tell me what you would do if you saw something go wrong’ or ‘How would you get hold of your surgeon if you are worried about a patient?’” Ross says. “Sometimes a center looks great on paper, but you have to be there, with boots on the ground, to understand whether the center is meeting your requirements.”

She estimates that contracts are signed with about 80 percent of the health systems that receive a site visit.

What Good Looks Like

While standardized protocols are essential to the quality that PBGH is looking for, an excellent patient experience is equally important.

“We want to see that patients are being treated as individuals—we want to see this during the team calls, we want to see it in the responses to the RFP, and we want to see it during the site visits,” Ross says. “We talk about standardization all the time, and it is incredibly important.   But at the end of the day, we need to know that patients are recognized for having their own specific considerations and that they are traveling with caregivers who may be more scared than they are.”

Other things potential ECEN candidates should know.

Patient evaluation. Determining which patients are appropriate for surgery is key to good outcomes. For that reason, a health system’s process for evaluating patients is a top priority for PBGH. Ross does not want to hear that a surgeon makes a unilateral decision.

“We have to say ‘No, I want to know what your entire process looks like’—and, in an amazing number of health systems, people are very confused by that, and those are bad signs for us,” she says. “We want them to understand that things like shared decision-making are really critical, and that this shouldn’t be ‘I looked at the X-ray and come on in!’”

Pricing. Health systems propose a case rate based on the related DRG and CPT codes for the relevant care bundle. To some extent, candidates compete against one another on price.

“If an organization makes it to the end with us, we will tell them if their proposed rate is out of range,” Ross says. “For example, if two proposals are pretty close in price and one is twice that rate, we give that organization an opportunity to know that. But if someone comes back to us and their pricing is not what we are looking for, we just have to eliminate them.”

Working with Employers

Even though PBGH has a small Center of Excellence network, Ross encourages health systems to seek opportunities to work directly with employers in their own markets.

“Self-insured employers probably want to talk to you more than you think,” she says. “They have ideas, and they have concerns, and a lot of times those discussions never happen. If there is a local business coalition and a large employer in your area, it is worth developing a relationship.”

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Lola Butcher is a freelance writer and editor based in Missouri.

Interviewed for this article: Olivia Ross is associate director of the New Initiatives team, Pacific Business Group on Health, San Francisco.