Health systems are increasingly investing in strategies to engage purchasers directly in value improvement initiatives. 


At a Glance

Health systems that wish to engage employers and other healthcare purchasers directly in initiatives to improve health should consider a number of steps, including:

  • Setting a reasonable goal around a critical mass of covered lives the health system could attract and maintain through such an approach
  • Finding likeminded customers and partners.
  • Anticipating competitive responses from the market
  • Creating a distinctive brand

A growing number of health systems are investing considerable resources to engage employers in initiatives that improve value, such as wellness and disease management programs, total-cost–of-care insurance arrangements, and money-back guarantees. 

For most health systems, the primary goal of this type of outreach is to attract and retain a critical mass of patients as well as premium dollars so the health system can control the distribution of premium dollars (at least in theory). A common secondary goal is to rally an otherwise fragmented physician community around a common go-to-market strategy that improves quality, cost, access, and service. A third, very pragmatic goal is simply to “play catch-up” against the myriad brokers, managed care companies, and other healthcare organizations that are creating new products and networks; a purchaser engagement strategy can keep a health system’s options open and avoid the risk of being excluded from participation.  In summary, a direct-to-purchaser strategy is no longer a defensive “hedge” against competition. It is becoming a means by which providers attract and maintain customers.  

The success of purchaser engagement strategies depends largely on establishing a deliberate plan, staffing model, process, and tactics for purchaser engagement. 

Executing a Direct-to-Purchaser Strategy

Health systems face a number of challenges in implementing a successful strategy to sell services directly to purchasers—challenges that are particularly acute if the goal is to bypass insurance brokers and insurance companies and work directly with employers to improve value.

A market structure that does not support success. In some markets, local insurance brokers and large managed care incumbents view providers’ attempts to work directly with employers on value-based initiatives as a threat to their profits. As a result, brokers and payers may aggressively attempt to block direct-to-employer initiatives. In other markets, the numbers of large employers with local purchasing decisions are limited, making the costs of direct outreach much greater than the benefits. It is important to reflect on the market structure before investing in a strategy specifically focused on engaging employers.  

Unclear internal expectations around who will manage the direct-to-purchaser sales strategy and operations. Many health systems either lack experience in engaging purchasers—and employers, in particular—or need to significantly update their existing strategies based on recent market changes. Such circumstances can contribute to an inherent lack of clarity around who is accountable for the success of the direct-to-purchaser sales strategy. Health systems should ask five questions to address this challenge:

  • Who is responsible for engaging employers and other purchasers?
  • What is the role of finance in selling new accounts?
  • Does strategy become the sales division’s responsibility?
  • What is the physician’s role in a direct-to-employer strategy?
  • How many staff are necessary to manage employer relationships, expectations, programs, and data sharing?

Employers’ skepticism over broken promises related to prior efforts in managing health and wellness, chronic illness, and disease. A less-than-stellar track record may impair a health system’s abilities to sell its programs directly to employers, especially if the health system lacks clear proof points (as most do). Employers will not simply buy into a health-and-wellness, disease management or insurance product based on a theoretical value proposition; they must have quantifiable proof points to consider.

Provider fragmentation and duplication. Fragmentation and duplication within a health system dampens the impact of any single proof point the health system might be able to generate. For example, consider the numerous touch points a patient might have with the health system (e.g., the information overload a patient experiences after surgery). That patient might have follow-up with a primary care physician, a specialist, a health plan case manager, and a retail pharmacy consult, to name just a few. If a patient’s typical interaction with the health system is incredibly fragmented, then any “value proposition” conveyed while working to engage the employer in an initiative will not reflect what their employees actually experience. Being objective about how the health system interacts with patients can help a health system  avoid the risk of increasing purchasers’ skepticism of providers’ ability to deliver value.

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A Checklist for Successful Employer Engagement

Success under employer engagement initiatives does not come without a deliberate plan, staffing model, process, and tactics. Health systems should consider the following checklist as they plan and execute such initiatives.    

Set a reasonable goal around the number of covered lives the health system could attract and maintain with an employer engagement campaign. For example, imagine the effect of having 20 percent of a health system’s volumes and revenue flow through a “direct-to-employer” strategy. For a moderately sized health system with 50,000 total admits and 300,000 visits a year in a city with 1 million lives, that would mean 10,000 admits (0.20 x 50,000) and 60,000 visits (0.20 x 300,000) would come from the direct-to-employer channel. These utilization statistics would translate into approximately 100,000 lives under contract (or 10 percent of the total lives in the market).

Next, consider what network, utilization levels, and price points a health system would need to maintain those 100,000 lives: These patients would require at least 100 primary care providers, assuming the primary care providers see patients associated with other payers. In this example, a primary care provider could assume that 20 percent of patients (1 in 5) will come through the direct-to-employer channel with a shared savings/shared risk financial model.  Those physicians would need to minimize avoidable utilization, fixed and variable costs to achieve a 5-to-10-percentage-point advantage in total medical costs. Can your organization sustain this vision/footprint?   

Find likeminded customers and partners. Another key question to ask is what types of organizations would make the best partners in these direct-to-purchaser initiatives. Providers should work toward finding not only employers but also brokers, and payers that are willing to invest in jointly customizing benefit designs, networks, and clinical programs and then share detailed clinical and financial data that could provide insight into how to improve quality and reduce the total cost of care. Such partners do exist—but providers have to search for them. With a disciplined team and a process that is mindful of the needs of all parties, healthcare leaders will know when they have found  a strong partner.

Recognize the regulatory and legal issues associated with direct-to-employer arrangements. For example, is the health system required to file its physician hospital organization as a health plan with the state? Does the contracting entity have to pay premium taxes? Would the contracting entity need to hold reserves? Does the employer need to meet mandated benefits requirements, or is there another intermediary that can handle those functions, including reporting and disclosure activities?  

Create a sustainable economic model for the direct-to-purchaser initiative. The flow of funds among patient, employer, provider, and administrator should be outlined before the arrangement goes live. This process should start with estimation and competitive benchmarking of the total premium inclusive of medical costs, administrative costs, reinsurance, guarantees, and profits. Then, the health system should calculate the employer and employee up-front contribution to the premium at point of enrollment. The health system also should consider contractual arrangements it with out-of-network providers to service employees when they are out of area and need medical care. Will employers want reinsurance for out-of-area (network) or high-case-mix utilization that the health system doesn’t manage? If so, the health system will need to seek a  partner that can offer reinsurance to employers or in-network providers while being mindful of applicable state and federal laws.   

Anticipate competitive responses from the market. Some channel partners will be hostile and some will be helpful when health systems seek to work directly with employers. For example, some payers will flood the market with a variety of differently priced products and networks to attract a wide range of employers that offer an alternative to a health system’s network. Indeed, some of those products may be priced to deter the health system from entering the market. Health systems pursuing an employer engagement strategy should be careful not to underestimate the need to invest in people with connections to key books of business (e.g., school districts, county employees, business councils, city employees, unions).   

Have a clear plan to reduce avoidable cost and utilization for each patient population. Well-prepared health systems have an advantage over competitors if they understand the opportunities to reduce avoidable costs and utilization, including avoidable emergency department visits, readmissions, one-day stays, and ancillary utilization. They also have an advantage if they can actively manage the top 3 to 5 percent of the population that incurs up to 50 percent of the costs.  

Create a brand. Health systems should take care to invest in materials that have a common look and feel (e.g., insurance cards, programs, equipment, correspondence), common proof points (e.g., timeliness of calls, visits, data), and personalized interactions (e.g., personalized care plans, wellness scores, newsletters and ongoing outreach).

Final Thoughts

Health systems that wish to pursue an employer engagement strategy should first ensure they understand the business (e.g., brokers, commissions, reinsurance, politics, funds flows, competitive responses). They should not enter such agreements without a commitment to delivering an integrated delivery network capable of attracting a critical mass of customers and network providers. 


Michael E. Nugent, CHFP, is a managing director, Navigant Consulting, Inc., Chicago, and a member of HFMA's First Illinois Chapter.


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Direct-to-Employer Strategy: A Case Study

Despite the barriers to directly engaging employers in managing value, there are several lessons that can be learned from well-executed direct-to-employer initiatives.

Consider, for example, a semi-rural market health system with $1 billion in net revenue and a dozen hospitals and a large manufacturer headquartered in the market with more than 4,000 self-insured lives locally. 

Historically, the employer contracted with one of the nation’s largest insurers. The CEO of the health system approached the employer CEO in hopes of establishing a long-term relationship in containing and reducing escalating medical costs.

Both organizations knew that it was unlikely that a large national carrier would invite the health system into the type of relationship the health system could have directly with the employer, so they came to a mutually beneficial agreement on their own. They agreed they would not simply sell “off the shelf” products to one another (e.g., wellness, money-back guarantees, Medicare supplemental insurance). Rather, they sought to invest time and effort in reducing total cost of care through benefit design changes, provider network inclusion, significant steerage, and avoidable cost reductions. 

The relationship resulted in a number of positive results for both organizations. The health system now administers a large worksite clinic on behalf of the employer and is building a moderately sized ambulatory facility next to the employer’s main manufacturing plant to further build its patient base. The patient population served under this arrangement is part of a “learning lab” where new disease management programs, IT solutions, and benefit design modifications on the commercial population and early retirees are tested. Patient satisfaction, access, quality and costs perform well relative to nearly all benchmarks, and physicians are particularly proud of the proof points they have delivered on behalf of the employer.

Publication Date: Thursday, August 01, 2013

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