(480) 923-0802

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.”

What else you need to know
CMS is overhauling the rules for its Medicare ACO program, the agency announced Thursday, calling the new program “Pathways to Success.” In its announcement, CMS issued a proposed rule that allows an ACO to remain in an upside only (Track 1) risk model for two years. The proposed rule also will limit Track 1 ACOs to 25 percent of eligible shared savings, compared with the current 50 percent rate. About 80 percent of Medicare Shared Savings Program ACOs are Track 1. CMS expects at least 100 ACOs to leave the program, or about 20 percent of current MSSPs. Also of note in the proposed rule:

  • CMS would be authorized to terminate ACO contracts with multiple years of poor financial performance.
  • Certain ACOs under performance-based risk be allowed to provide incentives to patients for taking positive steps to achieve good health.
  • Physicians in ACOs would receive payment for telehealth services, in accordance with new CMS authorities under the Bipartisan Budget Act of 2018.
Separately, CMS said it will allow step therapy for Part B drugs in Medicare Advantage plans, allowing payers the option of negotiating prices with manufacturers. CMS also will allow Medicare Advantage plans with a Part D benefit to “cross-manage across Part B and Part D, so that patients receive the best medicine whether it is physician-administered or self-administered.”

The policy rescinds an Obama Administration policy in 2012 indicating that step therapy is legally forbidden in Medicare Advantage. Cancer groups, including the Community Oncology Alliance (COA) and the American Society of Clinical Oncology, immediately condemned the policy.

“This action from CMS is going ten steps backward, and not where personalized cancer treatment is going,” Ted Okon, executive director of COA, told Medscape. “This is old-school, one-size-fits-all, cookbook medicine that treats every patient the same way.”

More here on the Part B policy, here for more on changes to the ACO program.

Brown University signed a memorandum of understanding with Partners HealthCare and Care New England (CNE) to “formalize a joint commitment to providing the highest quality of patient care, physician training and biomedical innovation to Rhode Island.” Under the agreement, Brown’s Warren Alpert Medical School will be designated as the primary academic research and teaching institution of record for Partners and CNE. In May, Partners signed a definitive agreement to acquire CNE. More here.

Humana filed a lawsuit against more than 25 pharmaceutical companies, alleging price fixing of widely used generic drugs. According to the complaint, the companies were engaged in a “far-reaching conspiracy … to blatantly fix the price of such drugs.” The suit further alleges that the defendants “conspired to manipulate the relevant markets, allocate these markets among themselves, and obstruct generic competition.” Humana’s move follows a suit filed in November by 47 attorneys general against 18 pharmaceutical companies with similar allegations. Court filing here.

Rite Aid and Albertsons called off their $24 billion merger agreement Wednesday, a day before a vote was to be taken by shareholders. CNBC reported that the companies were unable to reach a deal that satisfied investors, which includes Highfields Capital Management and Cerberus Capital Management.

Mayo Clinic will welcome a new president and CEO at the end of the year, when Dr. John Noseworthy retires. Mayo announced Friday that Dr. Gianrico Farrugia, who has served as CEO of Mayo Clinic’s campus in Jacksonville, Fla., since 2015, will take the reins.

What we’re reading

Contact Darwin Research Group and we will get right back to you.