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With Direct Contracting Boeing Cuts Out the Middleman

The aerospace giant has direct contracts with health care systems in four markets. Should insurers worry that other large employers will cut them out and start dealing directly with integrated delivery systems?

Joseph Burns
Contributing Editor
Mercy health system has had direct contracts with employers for 20 years and added Boeing employees in 2016. Tracy Riordan, MD, Mercy’s clinical vice president, says that “having a direct contract is helpful because we can bring all the parties together frequently throughout the year.” The meetings help the parties spot trends and make adjustments.

Is there a better way to deliver health care when thousands of employees are scattered across 50 states? Does one large employer have enough leverage in any market to change the way health care is delivered? If that company could contract directly with health systems and thus eliminate the middleman—meaning health insurers—could it reduce costs and improve the quality of care while keeping employees healthy, productive, and satisfied with their health plan?

These questions are among many that Jeff White, a Boeing health care benefits strategist, asked before starting a series of direct contracts with large integrated health systems in four markets. The first was in Seattle in 2015. Last year, Boeing added contracts in St. Louis and Charleston, S.C., and, at the beginning of this year, the aerospace giant contracted with a large health system in Southern California. Today, it has more than 15,000 employees—or about a third of the eligible employees in those four locations—enrolled in direct contracts. Boeing has dubbed the direct contracts its Preferred Partnership health plan.

Question for employers: How are you using ACOs to reduce overtreatment?

Source: National Business Group on Health, “3 Strategies Employers Can Use To Reduce Overtreatment,” Sept. 20, 2017

Since the program started, only one health system has dropped out: Providence–Swedish Health Alliance, an accountable care organization that Providence Health & Services and Swedish Health Services, both in Seattle, formed in 2014 to provide care to Boeing’s employees and retirees in Western Washington. In June, Boeing said the alliance decided not to participate in 2018 when open enrollment starts in November. Boeing would offer no further explanation, referring questions to Providence–Swedish Health Alliance. As of press time, Providence–Swedish had not responded to a request for comment.

Jeff White

Specifying expectations in a contract is where the “direct” in direct contracting gains some muscle, says Jeff White of Boeing. Employers get leverage over cost and control.

White says Boeing used a formal RFP process in each market and included integrated health systems that were high quality and committed to innovation and value. Boeing describes the entities that it directly contracts with as ACOs “whether they use that term or not,” White says.

By specifying its expectations in contract language, Boeing gets exactly what it wants from health care systems under its direct contracts. For White, director of global health care and well-being strategy at Boeing, this is where the “direct” part of direct contracting has some muscle: He can contract for improved coordination between primary care and behavioral health specialists. He can improve the quality of care and get higher patient-satisfaction scores. Perhaps most importantly, he gets more leverage over cost control because Boeing and the health care providers agree on a financial guarantee for a specific period of time. If the health systems do well, they share in the savings. If they fail to hit their targets, they lose out.

By virtue of direct contracting, White can say that, yes, there is a better way to deliver care, and, yes, Boeing has enough clout in four markets to begin to improve—at least for its workers and family members—how care is delivered.

But answering the third question—can a large employer contract directly with health systems to reduce costs and raise care quality?—is more difficult. After seeing some preliminary evidence of lower costs, higher quality, and increased satisfaction, White is confident the direct contracts will produce better results than the traditional delivery model they replaced, but he will not be much more specific than that. And there is still a role, albeit a more limited one, for insurance companies. In each of these markets, Blue Cross Blue Shield of Illinois is Boeing’s third-party administrator.

In particular, White is pleased to see the health systems integrating behavioral health into primary care settings. Depression has been treated separately from the rest of primary care partly because health insurers have long paid for siloed care. Before signing up with Boeing, the providers under contract were not financially accountable for the care they delivered, so they had no incentive to ensure that employees or family members with depression got the care they needed, White says. “We all know that depression is comorbid with every other disease, so once they were accountable for all costs of care, they became interested in helping control that cost in a new way,” he explains.

Gold in them thar data

Even if the effort is too new to have produced definitive data on the cost and quality of care, White is convinced that direct contracting can help drive change. “Under direct contracts, negotiations with provider organizations can be simpler for a single employer than they would be with a health plan because health insurers represent a variety of populations and employers,” he says.

“When we talk to a provider, it’s a pretty simple discussion because we have long-tenured employees and a known actuarial risk,” he adds.

“Long-tenured workers” and “known actuarial risk”—those two factors give Boeing a big advantage in negotiations with health systems. About 20% of health plan members will move from one insurer to another every year. Of course, employees can move as well, but especially at such a large, well-established company as Boeing, turnover is limited.

Like all large, self-insured employers, Boeing knows what it costs to provide health care to its workers and their families going back decades. For a health system entering a direct contract, that historical data is gold because it allows the provider organization to predict with relative accuracy what to expect when covering Boeing’s workers.

It also means that Boeing has greater interest than many employers in keeping its workers healthy. “For a relatively stable population, the investments we make in our employees this year will reap dividends in 2020 when they’re still here and not having a heart attack,” White says. “That’s a little bit of a cleaner risk story than you may have with an insurer that doesn’t have as captive a population.”

Assuming risk

The point is that Boeing has what health systems want: large groups of employees and family members with known risks. Therefore, Boeing can ask a lot of the health systems under contract, such as ensuring that its workers are satisfied with their health care experiences.

“In a broad sense, the Triple Aim captures what we want the best,” White explains. “We want our employees to be delighted to go to their system.”

It would be a challenge to find any American who has used the words “delighted” and “my health plan” in the same sentence. Many would gladly settle for less frustration and fewer annoyances.

White also wants to see quality improvement (he’s not expecting miracles and is prepared to have it happen over time) and control of costs. In addition to incorporating mental health into primary care, that means reining in drug costs. “While providers may not be able to control the unit price of drugs, they certainly can influence appropriate utilization through how they prescribe medications to patients,” he says.

Payment from Boeing to its provider organizations is built on “a fee-for-service chassis,” says White. That means providers get paid for each service. Claims are filed and processed for payment by the administrator, Blue Cross Blue Shield of Illinois, as they would under fee for service. But, at the end of the year, Boeing reviews quality results, including the patient experience, and the financials to calculate shared savings or penalties.

Member experience items include how quickly employees can get appointments, whether after-hours care is available, and if employees can communicate with their doctors via email.

“On those things, we’re generally getting good reviews, but it’s a softer area to analyze because some doctors’ offices may be great at these things while others struggle,” White says.

Advantages for health systems, too

Mark Schafer, MD, is CEO of the MemorialCare Medical Foundation, a 2,000-physician medical group associated with MemorialCare Health System, a five-hospital group in Southern California. The health system’s MemorialCare Health Alliance is a network of hospitals, medical groups, and individual physicians that entered into a direct contract with Boeing earlier this year.

Under a typical contract between a health plan and a health system, the insurer won’t share the data it has on the population being served, says Schafer. “That makes it much harder for the providers to tailor specific programs for the population,” he adds. “In a direct-to-employer relationship, we don’t have that problem.” Getting the data on each patient’s medical history allows MemorialCare to tailor its offerings to improve care effectively and efficiently.

“Because we can design programs specifically for that population, we can make a significant change in how health is delivered,” Schafer comments. “Plus, patients are more responsive when it’s your doctor’s office calling versus a health plan that may not even be based in the same state.”

To serve Boeing’s employees well and those of the other employers MemorialCare has under direct contracts, Schafer says, the health system has learned it needs clinics spread widely throughout the service area. If patients can’t access care nearby, they go to the nearest emergency room—the most expensive setting for care, even for routine health needs, he adds.

A decade ago, MemorialCare recognized that controlling ER costs requires having ancillary service locations in addition to hospitals and physician clinics. Since then, it has built a network of centers for ambulatory surgery, imaging, urgent care, dialysis, and pediatrics. “Offering a wide range of places where patients can access the network throughout a geography is important for convenience for our patients and for patient satisfaction,” Schafer explains. While costs rise during construction, spending comes down eventually, he says. “There’s definitely an upfront investment, but over time it pays off.”

Tracy Riordan, MD, clinical vice president for the Mercy health system headquartered in Chesterfield, Mo., has had similar experiences as Schafer describes. For 20 years, Mercy has had direct contracts with employers in Missouri. It added Boeing employees last year in what Mercy calls a direct contracting ACO.

“Having a direct contract is helpful because we can bring all the parties together frequently throughout the year,” she says. “Those meetings allow us to discuss trends and utilization and implement changes to drive down the cost of health care and improve quality.” After just over 18 months, it’s too early to discuss the financial results of the program, Riordan says. But so far, she adds, Mercy is pleased.

Bottom line for Riordan and Schafer is that while the Boeing direct contracts won’t transform the health care system overnight, they are making incremental improvements that are lasting and significant.

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