Direct contracting needs physician leadership

Get local employers to see your vision

If you sense that your community is ready for direct contracting between health care providers and employers, don’t wait for a hospital or a third-party administrator to make the first move.

Developing a locally controlled managed care plan, in effect, requires someone who can provide leadership and get the local employers to see the vision, says William J. DeMarco, MA, CMC, president of DeMarco & Associates, a Rockford, IL health care consulting firm.

"Physician-driven integration creates better products. What you have is an opportunity to show what physicians can do by taking a leadership role," DeMarco says.

Start by studying your market carefully. This includes taking these steps:

• Look at the makeup of your community and what the medical needs are.

• Find out what types of patients are in your area and what types of employers you will deal with.

• Decide what products you want to offer and to whom in the market do you want to offer your services.

"Physicians have to determine realistically what those patients and employers want and structure their organization to meet those needs from a marketing standpoint," says David Main, an attorney with Shaw Pittman, a Washington, DC-based health care law practice. "Every community really is different," he adds.

The practice works better in a medium-sized town than in a large metropolitan area, says Bo Bobbitt, head of the health team at Smith Anderson LLP, in Raleigh, NC.

Once you’ve determined that there is a need in your community, form a steering committee of community physician leaders to visit with local employers, particularly those that are self-insured, and discuss the benefits of a community-based health plan. Find out what the employers would like in the way of a health care plan.

Keep your steering committee small enough so it won’t get bogged down. "You need to be willing to entrust the success of the organization to people who have expertise and give them the authority to move forward, rather than trying to make decisions as a large group," Main says.

Be choosy about which employers you choose to negotiate with. "It’s much easier to deal directly with self-funded employers than with the small insured companies," Bobbitt says.

Whether an employer can self-fund a health care product depends on many factors. For instance, self-funding is easier if an employer has a large number of employees concentrated in one area rather than scattered across several states.

Ensure you’ll be paid

Make sure the employer is financially viable. You want to be paid for all the services you provide. There generally is less risk of nonpayment with larger employers than smaller companies.

When you enter into direct contracting for your services, you won’t have the protection of any government regulations to govern the solvency of the company with whom you contract. With an HMO there are state regulations requiring financial stability. It’s up to you to make sure the company you deal with won’t go out of business or have financial problems.

Point out to the employers that the care will be managed locally, not through an intermediary in another state. "Direct contracting changes the way health care is delivered. It usually takes a crisis or some event to trigger this change, or it can be done if your community has a good physician leader," Bobbitt says.

Approach the employers about long-term continuity of care and improving the standards of care. Focus on improving quality, not just the prices, DeMarco suggests.

If there is interest in your community, set up a small corporation that is 100% physician-driven. When Bobbitt sets up an organization to do independent contracting, he makes sure it is totally doctor-owned and operates with an independent board of directors.

For instance, he worked with the physicians in Sandhills Physicians Inc. in Fayetteville, NC, to form a committee that approached the local plant manager’s association about a direct-contract product to cover the employees of self-insured firms.

When the employers showed an interest, the physicians approached Cape Fear Health System and formed a partnership — Doctors Direct Health Care. (For details on the venture, see story, p. 38.)

"Physicians shouldn’t wait for the hospital to do their bidding for them. The hospital’s goal is to fill beds at the highest income level possible. They can show full occupancy and still lose money. The hospital could be dropped, and the physician could see their patients go to the doctor across the street without even being involved in the negotiations," DeMarco adds.

Employers are starting to realize that the contract can’t be just with the hospital because physicians may not do what the hospital is dictating, he says.

Start out by inviting every high-quality, credentialed doctor in your community to participate in your health plan. "We start out being inclusive but we don’t give anybody a lifetime membership," Bobbitt says.

Once the program gets going, start measuring the cost and quality of care each physician provides. Keep the good performers who are providing quality care and de-select those who are not, he advises.

"Make sure the doctors understand that they need to focus on getting people well with limited health care dollars," Bobbitt says.