Big Companies Try to Improve Care Through Direct Contracts

General Motors (GM) will soon offer employees a new health benefit. It is part of an emerging trend of large employers contracting directly with health care providers who offer coverage for just about any type of medical service an employee may need, following the lead of small companies who have been contracting directly with primary care providers. GM’s agreement with the Henry Ford Health System uses a “value-based contract:”

Under the five-year contract, Henry Ford agreed to goals for quality, cost and customer service, such as same-day or next-day appointments with primary-care physicians. Among the objectives are reducing hospital admissions and improving management of high blood pressure. The contract includes targets for the total cost of enrollees’ care.

If the six-hospital health-care system meets or beats certain goals, it can win extra payments, but if it falls short it might owe money back to GM.

“We believe we can do it,” said Wright L. Lassiter III, Henry Ford’s chief executive. He said the system already has participated in a Medicare program with some similarities to the GM setup. “Is it a risk? Absolutely…You might deliver less of the stuff that would traditionally generate more revenue.” The industry needs to move away from models that reward the volume of medical services, he said.

Value-based insurance contracts are a cost-effective way for large companies to drop the traditional employer-sponsored health insurance model in favor of a more personalized health plan for their employees. Because of the way “value-based” contracts are set up, there is much more focus on patient outcomes compared to traditional “fee-for-service” contracts which incentivize quantity over quality of care, leading to overconsumption.

Although the conditions for such a program have to be right, companies such as Intel have succeeded in using this type of health benefit program. The end goal of any health care reform or innovation needs to focus on reduced consumption and reducing overall cost, while still making people healthier. Value-based contracts used by large employers have the potential to accomplish all of those and the savings could be seen in the form of higher wages for workers.

Jordan Roberts / Health Policy Analyst

Jordan joined the Locke Foundation in the summer of 2018 as Health Care Policy Analyst. He analyzes state and national health policy issues with an eye toward removing governm...

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