Direct Contracting – Part 2: Clear Your Mind of The Lies That Bind (Your Thinking)

This post is the second in a series on direct contracting by physicians and medical groups. See Direct Contracting By Physicians and Medical Groups for the first post in the series.

Before we get too deep into the subject, let’s ask an epistemological question: If you saw one dead raccoon, does that mean that all raccoons are dead?

Yet many have pronounced that the failure of a few early entrants into direct contracting signals the death of all direct contracting. Just as with one dead raccoon, that reasoning misses the mark; it’s a lie.

In this short post, I want to get across a basic understanding of what I mean by direct contracting and the opportunities that it presents.

The concept of direct contracting can be applied in many ways.

For example, it’s certainly being applied in a direct to patient model, primarily in primary care. You can view that model as somewhat akin to concierge medicine in which patients are charged a fixed amount per month and receive a standard, prix fixe menu of services and, usually, an à la carte menu of add-on services at published, fixed prices.

That model can be morphed one step removed by having the contract between the medical group and an employer for the benefit of the employer’s employees.

But there’s no stopping there.

The notion of “direct” is that there’s no intermediary entity in the chain of payment. The “premium,” if you will, is paid directly from its original source to the contracting medical group. Compare that with a traditional employer provided insurance policy: there’s at least one intermediary in the arrangement chain, the insurer. More often than not, there are 2 or 3 or more intermediaries, each taking their cut.

Of course, there’s no legal, as in mandatory, definition of “direct.”

The bottom line is that “direct” is more of a mindset — it’s the dematerialization of the payment intermediaries in connection with your design of a payment/delivery structure.

For example, an orthopedic group in a location with a large, self-insured employer might enter into a contract with the company for non-workers compensation orthopedic care (either physician side only or, if the group controls an ASC, facility side outpatient procedures). How the financial terms are structured (e.g., a negotiated price per item or episode of care, a reduced fee for service, what quality metrics apply, and so on) is open to negotiation.

And, for example, in another context, direct contracting can be used as a strategy to deflect the negotiating pressure of payors, especially down-stream middlemen such as IPAs and risk bearing medical groups.

Stay tuned. Over the next several months, we’ll continue to discuss elements of direct contracting, including compliance, potential licensing issues, deal structure, and other elements.

Comment or contact me if you’d like to discuss this post.

Mark F. Weiss

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