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Four Tips for Employer Direct Contracting

Analysis  |  By Philip Betbeze  
   April 05, 2018

Direct contracting deals between hospitals and health systems and employers are becoming more attractive as employers become more sophisticated about where the costs lie in healthcare.

Seattle's Virginia Mason Medical Center, a multispecialty group practice of more than 470 physicians, has been working directly with employers to provide specific health interventions since at least 2004.

At that time, Robert Mecklenburg, MD, medical director of the Virginia Mason Center for Healthcare Solutions, met with employers frustrated by the high cost and uncertain quality of the healthcare they purchased from Virginia Mason and others.

That initial meeting eventually led to Virginia Mason's focus on contracting with employers directly for episodes of care.

Although making this change at Virginia Mason was far from an easy journey, the program has grown, focusing on particular bundles of care related to specific conditions, such as low back pain/spinal, total joint replacement, and cardiac surgeries, along with determining whether surgery is appropriate for the patient.

Walmart, the state of Washington, and Lowe's are among the large employers who encourage patients to seek treatment at Virginia Mason by waiving all copays and coinsurance for their employees.

Don't cut out the middleman. Do determine appropriateness of care.

At Virginia Mason's core, the strategy of direct contracting with employers was not born of the idea of cutting out the health insurer middleman, but in determining best practices and appropriateness of a given healthcare intervention, says Suzanne Anderson, president of Virginia Mason Medical Center.

"We do not advocate that we need to disintermediate the payers as a strategy. I think though, some of the first to market have had to do that to get to the other side," she says. "Walmart had to do that and hired a different firm to manage that benefit, but what was more important was the wake-up call."

Payers, says Mecklenburg, are burdened by a legacy of fee-for-service.

Paying for healthcare in such a way naturally leads to paying for interventions that are "two-thirds good healthcare and one-third not-so-good," he says.


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Philip Betbeze is the senior leadership editor at HealthLeaders.

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