Innovative Direct Purchaser-Provider Contracting: a New Threat to Community Hospitals? | Mark Hagland | Healthcare Blogs Skip to content Skip to navigation

Innovative Direct Purchaser-Provider Contracting: a New Threat to Community Hospitals?

May 8, 2017
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Will the growth of direct provider contracting on the part of self-insured corporations be a game-changer?

In a sign of the quickening pace of transformational change in U.S. healthcare, numerous keynote and concurrent sessions at this year’s World Health Care Congress, held last week (April 30-May3) at the Marriott Wardman Park Hotel in Washington, D.C., were crackling with energy and strongly trending developments this year.

I want to comment on the May 2 keynote panel discussion session, “Propel the Shift to Value-Based Care: The Forefront of Financial Sustainability, Cost Reduction, and Outcomes Improvement,” moderated by Robert Pearl, M.D., executive director and CEO of The Permanente Medical Group, the physician organization component of the Oakland, Calif.-based Kaiser Permanente organization; that session offered its audience really enlightening perspectives on the broad dynamics of tension between and among purchasers, health plans, hospitals, and physicians, in the current healthcare market, and the current power struggles around consolidation and contracting. I plan to comment on that session very soon.

Meanwhile, though, I want to say a few things about a fascinating discussion that took place later that day as part of the direct-contracting track at the Congress, a discussion among stakeholder group leaders that took place during the session “Employer and Provider Perspectives: Direct Contracting and Bundled Payment Partnerships to Bend the Cost Curve,” was a fascinating one. Those engaging in that discussion were Bob Ihrie, former senior vice president, compensation and benefits, at the North Wilkesboro, N.C.-based Lowe’s Companies, Inc.; Olivia Ross, associate director, Employers Centers of excellence Network, at the San Francisco-based Pacific Business Group on Health (PBGH); and Mark Shaver, vice president, business development and strategic alliances, Johns Hopkins Medicine (Baltimore).

Having a (recently retired) corporate benefits senior executive, a business alliance senior executive, and a hospital system contracting executive, share blunt perspectives on direct contracting-based partnerships, was truly fascinating. Basically, shorn of a lot of details, what Ihrie, Ross, and Shaver engaged in discussing had to do with a trend that every senior executive of any patient care organization should be following: the trend on the part of mega-corporations like home improvement empire Lowe’s, towards developing and executing on contracts in which they send employees and employee family members to centers of excellence that they’ve officially certified, including Johns Hopkins, Cleveland Clinic, Mayo Clinic, etc., etc., based on very rigorous outcomes measurement, process requirements, and other mandates. Benefits management executives like Ihrie are documenting very significant financial savings from these programs, while the Pacific Business Group on Health is elbow-deep in helping large self-insured corporations like Lowe’s to manage these programs.

Panelists (l. to r.) Shaver, Ihrie, and Ross

As Ihrie noted, for an extremely far-flung self-insured employer like Lowe’s, with its 1,800-plus home improvement stores spread across the U.S., doing what the Chicago-based Boeing Corporation, with its massive plants in Washington state, California, Missouri, and South Carolina, and its ability to build bricks-and-mortar corporate medical clinics in those locations, the options for Lowe’s are rather different. Thus, the desire to create systems to improve their patient outcomes for their covered lives, and improve costs.

Indeed, Ihrie told the audience, “The quality results have been so overwhelming that for Lowe’s for 2017, if you elect not to go to a center of excellence, you need a mandatory second opinion, and if it doesn’t approve, you won’t be covered.” He further noted that “Wal-Mart actually mandates travel to a center of excellence.”

PBGH’s Ross, asked about the value of these large, complex sets of arrangements, said this: “The value of collaboration? The main thing we add is this idea that collaboration has value—it’s about shared learning. We get together and talk about the summary it possible plan language they’re using, etc.—all the employers talking together continuously. Also, they want to make sure there’s a consistent patient experience. All of our centers are required to participate in ongoing continuous quality improvement together, and we’re setting continuous quality requirements. We’re totally outside the normal health plan, so we have a lot of flexibility and can design things. So that quality work is incredibly important,” she added.

Meanwhile, Johns Hopkins Medicine’s Shaver, who noted that his organization is an $8 billion enterprise, which includes “a robust international program with 20-plus partnerships in 17 countries,” nonetheless is deeply interested in PGBH’s program and in being a center of excellence in general. “My role is to lead our national strategy in figuring out how we position our delivery system to partner with large employers like PBGH and Lowe’s,” he noted. And he said that he is “focused on the shared learning we are trying to achieve in understanding the needs of large employers, but also the financial burden on patients. We need to be cost-effective and nimble and focus on value,” he added. “We very early on had a very innovative primary care practice that was part of a large HMO early on, so we’ve been in the business of bundled contracts for a long time, starting with cardiac and moving into solid organs and beyond. They bundled rates allow us to have price control and also predictability. We’re trying to innovate and to continue to propel that forward,” he added.