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Our Take: Henry Ford signs direct contract with GM

Aug 13, 2018

Henry Ford Health System announced that it signed its first direct-to-employer contract with General Motors. Starting in 2019, Henry Ford will provide health care management and wellness services to 24,000 salaried GM employees and their families in southeast Michigan.

Our Take: In our ongoing research with integrated health systems (IDNs), direct-to-employer contracting is one of the hottest trends in 2018. It’s not hard to see why.

First and foremost, direct contracting is cheaper for employers and employees alike. According to The Wall Street Journal, the plan will save GM employees $300-$900 per year relative to GM’s cheapest traditional health plan.

Direct contracting can also offer increased transparency for employers, since it can provide a clearer understanding of pricing and quality measurement.

And for the IDN—managed properly—a direct contract provides a new, sustainable revenue stream when the health system is seeking to diversify its portfolio of offerings.

There are downsides.

For one, by choosing one of these plans, employees are often limited to providers within the health system under contract—in this case, Henry Ford. But with the payer trend toward narrow networks, it’s only swapping one narrow network for another, and at a lower price tag for employees.

For another, IDNs must find employers that have a high concentration of employees in a given geography that aligns with the IDN market.

And, insurers are more comfortable managing risk than are providers, which means that IDNs better know what they’re in for before venturing into the insurance game.

One notable direct contract gone bad is the Providence-Boeing ACO agreement that commenced in 2004. The multi-year deal set goals for company medical costs annually like a traditional ACO: if costs exceeded projections, Providence Swedish paid the excess; if it beat the budget, it kept the savings. The contract stipulated patient satisfaction and quality measures as well, such as having short appointment wait times and tracking population measures in diabetes and cardiovascular disease. As part of the deal, employees had no co-payments for primary care visits (in most cases) and 100 percent coverage for generic-drug prescriptions.

Sounds good in theory, but Providence was getting killed by the direct contract. Financially, it was unsustainable, and in June 2017, Providence pulled out.

While the deal was launched amidst great fanfare, to date, Providence hasn’t publicly commented on why it ended.

“We promised them either zero or one percent medical inflation every year for five years,” a Providence St. Joseph Health executive told us in a recent interview.

“We couldn’t deliver that … no one can … that whole target was a fantasy.”

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