What’s ahead for The Alliance Network?
This is a question I’m asked frequently. In this first part of a two-part blog post, I’ll answer key questions and share my insights into how The Alliance is strategically seeking better ways to purchase high-value, safe health care for our members.
Employers are hearing more and more about the use of “direct contracting.” What does that mean for The Alliance?
Direct contracting is the direct relationship between a health care service provider and an employer, or group of employers. The term “direct contracting” is relatively new, but the concept has been around for much longer. In fact, this is what we do at The Alliance every day. We are a cooperative of employers that directly contracts with health care providers for medical services. The Alliance has been doing direct contracting for almost 30 years.
I look at it like having a Realtor. I can sell a house on my own and do all the complex tasks that go with it. Or I could pay a Realtor who knows and understands those complications to help me through it. Some people can navigate a home sale without a Realtor, but most people don’t have the time and bandwidth. Similar to how a Realtor helps people navigate the housing market, The Alliance helps employers navigate the health care market.
Direct contracting is one of our significant value propositions as an organization.
What is changing in The Alliance’s recent direct contracting work?
There are three significantly different developments.
- Employers have invited The Alliance to work with them in new geographic markets. Recently, a group of employers in northern Wisconsin were looking for new ways to reduce their health care costs. In my experience, it’s uncommon for an organization to get an invitation from a community. It’s a great example for how The Alliance partners with local employers and providers, and demonstrates the power of collaboration. It’s happening because employers are hearing about our approach.
- We are contracting with ambulatory surgery centers (ASCs) for outpatient surgical services to get savings for employers. The employers and insurance trusts we serve typically have a population that is still in the workforce, which means their age and overall health allows them to benefit from surgery in an outpatient setting instead of a hospital. This includes some bundle contracts, which offer a single price that covers multiple elements of the surgery or test and is known in advance. In comparison, QualityPath offers bundled surgeries in an inpatient setting, as well as outpatient tests.
- We’re moving away from discounts. Discounts helped us address high health care costs in the past, but they also keep us tied to the broken fee-for-service model. Instead, we’re helping employers implement pricing models based on Medicare methodologies, bundled payments, and prospective fee schedules. Fixed-pricing models allow employers to more accurately predict future healthcare costs. Another benefit of fixed-pricing is related to stop-loss, or reinsurance. Most stop-loss companies credit employers that utilize fixed-pricing strategies during renewal periods.
What is Medicare methodology?
Health care providers can charge whatever they want for their services. Instead of negotiating discounts off of a provider’s “chargemaster,” we are using the federal government’s pricing for Medicare as the basis for negotiations with providers.
Medicare pricing is based on, among other things, the cost of providing health care services. By setting our pricing on Medicare payments plus a specific margin for providers, pricing becomes more predictable.
We are currently working to incorporate fixed-pricing into all provider contracts. All our new agreements will use this methodology.
Why is this shift important?
Our goal is to align incentives for patients, for providers and for employers.
- We need patients to be engaged and active participants in their health care.
- We need employers willing and ready to partner with provider organizations that offer value and demonstrate value.
- And we need providers engaged and wanting to work with local employers and take care of local patients.
At the end of the day, we need sustainable, predictable pricing.
What other steps are we taking to achieve that goal?
The Alliance’s flexible re-pricing technology allows us to utilize multiple pricing strategies based on the needs of employers. As I mentioned earlier, Medicare’s methodology is one approach to stabilize pricing. In some markets, we’ve negotiated bundled pricing for surgical and diagnostic procedures. We’re also developing the capabilities and expertise to pay for primary care on a per-member, per-month basis; instead of fee for service.
Tell me more about outpatient bundles.
The term bundle means that we’ve negotiated a single price that covers multiple components of care required to provide the surgical procedure or test. The price is known up front, which lets the employer decide whether it’s worthwhile to offer incentives to encourage the employee to use the bundled provider.
This is good for the employer but it’s also good for the employee. There is a broader industry and market push to perform these services in the outpatient setting. Medicare began allowing total hip and total knee replacements to be performed in outpatient settings this year. There is research that shows that when it’s appropriate, it’s better for the patient. They get on their feet quicker and the risk of infection is decreased.
The Alliance serves a population that is typically younger and healthier than Medicare patients. Many of our patients are eligible to utilize these services outside of the traditional acute-care setting, which may be an outpatient hospital or ambulatory surgery center (ASC). In comparison, QualityPath® offers bundle services in an inpatient setting, along with outpatient tests.
Surgeries and tests that work well as part of an outpatient bundle typically share three characteristics:
- They are non-emergent. Because they are not emergencies, patients have time to compare providers in advance. The service is “shoppable.”
- They can be moved to an outpatient setting while still providing good care to patients.
- They are commodity services. Commodity services are frequently performed by numerous providers in various sites of care. Prices for these services can be easily compared across provider types.
The bundles that we’re signing now are part of our work to align incentives. We want sustainable, predictable pricing for Alliance members.