Direct-to-Employer Contracting: Understanding the Value of “Value”

Editor’s note: Christopher McBride, Vizient Principal, also contributed to this post, which was originally published on Sg2’s parent company Vizient Inc’s blog.

In today’s rapidly expanding direct-to-employer contracting sphere, it is of critical importance that employers understand the entire value equation. Too often, an employer’s focus is solely on a discount off what they are currently spending on a per-unit basis and doesn’t consider the myriad of other factors that define value. It’s almost like “value” and “unit price” are looked at as being synonymous when, indeed, they are very, very different.

The key point is that unit prices don’t fairly represent the total cost of treatment to the employer because they don’t reflect such important elements as effective treatment patterns, resource utilization and intensity, and sustained positive outcomes. Accordingly, we need to change the tone of the conversation away from one that focuses simply on unit costs and fee schedules to one that is much broader and is cognizant of key value aspects such as quality, patient experience, and the actual overall cost of care. An important element to consider when evaluating value is that value can be as much about what a buyer doesn’t spend as it is about what they do spend. Now is the time for hospitals and health systems to take a proactive stance with regard to educating employers who are participating in, or are considering, direct-to-employer agreements that value is more than just what you pay for because oftentimes it includes what you don’t pay for.

The Quality Component of Value

Though certainly not an exhaustive list, the following are five critical components of quality that we believe need to receive significant attention and focus in any discussion with employers or their representatives:

  • Appropriateness of Care—it should be stressed to potential buyers that patients referred from outside the hospital or health care system are thoroughly evaluated concerning appropriateness and suitability of care for the procedure for which they are being referred. In cases where it is deemed that the patient’s medical condition is not suitable for surgery or that more conservative treatment is more appropriate, the employer is saved the cost of the admission and the patient benefits from not having to undergo a procedure that is either unnecessary or unwarranted. Hospitals that can provide accurate data regarding the appropriateness of the care decision-making process and outcomes are in a strong position relative to this value component.
  • Site of Service—with so many previously inpatient-only or inpatient-heavy procedures shifting to the outpatient arena, the ability to show employers that inpatient services are only used when appropriate can strengthen the value proposition by pointing to lower expenditure on the buyer’s behalf as well as, most likely, a shorter recovery time and more rapid return to work. Sg2’s recent Orthopedics 2021 Outlook indicated a significant movement to the outpatient setting for hip and knee replacements, projecting that by 2029 some 75% of all these surgeries will take place in an outpatient setting as compared to only 28% in 2019, Clearly, a key component of the value equation is the right procedure on the right patient performed in the right setting.
  • Complication Rates—while many of the direct-to-employer agreements are of the bundled payment, fixed reimbursement variety (and, hence, complications that extend stay and require more resources are not priced differently from straight-forward cases), a hospital that provides lower complication rates can also point to the fact that (a) care processes are under control and there is less risk associated with a poor outcome, (b) they have high-quality physicians and (c) the patient may be returning to work more quickly.
  • Discharge Destination—if the first point of discharge for a particular patient population is either home or home with home health services, the employer is relieved of the more expensive and time-consuming effects of post-acute destinations such as skilled nursing or rehabilitation. A recent Vizient analysis of Medicare total joint replacement patients indicated that patients discharged to skilled nursing as opposed to home with home health averaged additional costs of almost $7,100 while inpatient rehab patients consumed in more than $21,000—and those are Medicare reimbursements; it is almost a certainty that these dollar amounts are higher in the commercial population. Moreover, once again, the employer receives benefits because the employee most likely gets back to work sooner.
  • Readmission Rates—low readmission rates speak for themselves concerning value and quality as well as the appropriateness of care and more rapid return to work.

Hospitals and health systems that can provide meaningful performance data around these elements—and it may be useful to look at these by attending/operating physician as well to build a panel of value-oriented practitioners—are in an excellent position to move the discussion away from simply unit prices to more importantly overall value.

So, while the actual incurred cost is certainly a factor in an employer’s evaluation of a direct-to-employer proposition, the key components of quality, such as those detailed briefly above are essential to the discussion as they highlight the value of what is not spent as well as somewhat more intangible benefits (such as rapid return to work).

To meet the increasing demand from self-insured employers looking to contract with health care provider networks, Vizient recently launched its Direct to Employer Solutions for health care systems, which include a national high-value network, direct-to-employer advisory services and connections with network administrative partners. Additional information is available online.

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