Slimming options

Dissatisfied with previous cost and quality efforts, computer chip giant Intel Corp. has entered an unusual direct contract with Presbyterian Healthcare Services for a narrow-network, accountable care-style arrangement for its employees in New Mexico.

The arrangement, which started in January, covers about 5,400 individuals at Intel's manufacturing plant in Rio Rancho, N.M. The California-based software developer and computer chip maker, which is self-insured, decided to contract directly with a single provider system rather than working with a national commercial health insurer this year to administer its benefits for some of its eight health plans options. Intel declined to name the insurer.

The deal offers Intel employees a narrow network of Presbyterian providers as two of four health plan options, which will enable the health system to better manage care, said Tami Graham, Intel's global benefits design manager. Outside the network, Intel employees are “getting care that's not coordinated and may not be in their best interest,” she said. Presbyterian's physicians can do more to control costs when patients cannot roam to independent or rival providers. Intel employees who selected Presbyterian's narrow network coverage will pay more for seeking care elsewhere.

Presbyterian, which now operates a clinic at Intel's Rio Rancho plant, will receive a bonus if it meets quality goals and Intel's employee healthcare costs stay under a set target. It also agreed to accept a financial penalty if costs exceed that target. Presbyterian has its own insurance arm, eight New Mexico hospitals and a medical group with more than 400 physicians.

Brian DeVore, director of healthcare strategy and ecosystem at Intel, said Intel's new direct contracting initiative follows the company's previous efforts to slow spending and improve workers' health through consumer-directed health plan designs, wellness checks and biometric screening. “I think we've done what most employers have done,” he said. “We realized that wasn't going to bend the trend.”

Intel projected the company could save $8 million to $10 million through 2017 with Presbyterian as better care improves population health, though costs are initially expected to rise, Graham said.

Presbyterian officials saw an opportunity to gain experience with a large, innovative employer that could help inform other direct contracts with other companies. “This is what we must get good at,” said Lauren Cates, Presbyterian's senior vice president of market development and operational planning. “This is our first experience in an employer-driven ACO,” she said. “We believe there's a lot of potential for this in the future.”

The move goes beyond an earlier effort by Intel to work directly with two Oregon hospital systems. And it's more sweeping than direct provider contracts by other major employers, whose contracts typically are limited to specific procedures and conditions. Intel will expand the direct-contracting, narrow-network approach to other markets, Graham said. Its health benefits covered roughly 127,000 people across the country at the end of last year, primarily in Arizona, California, New Mexico and Oregon.

Employers have for years sought to use their clout as buyers to extract lower premium increases and higher quality of care from insurers and providers. But that effort has intensified as companies look for more traction to slow-rising healthcare costs. “Getting the healthcare system to change is really, really, really hard,” said Graham, who said the company has learned from its collaborative work since 2009 with Providence Health & Services, Tuality Healthcare and Cigna Corp.

There, Intel and its partners in Oregon used total quality improvement methods to develop better care processes for back pain, hip, knee, shoulder and headache treatment. Intel and its partners said one result was $2 million in administrative savings in 2011, from reduced costs for patient scheduling and registration, for example.

Helen Darling, president and CEO of the National Business Group on Health, said employers contracting directly with providers “is actually the next logical step. It should have been done earlier, but it's not as easy as it sounds.”

Few employers surveyed by the business group have direct contracts with provider systems. The NBGH survey found that just 7% of the 583 large employers with a combined 11.3 million full-time employees who responded to the poll had such direct contracts. Another 6% said such contracts were planned for next year. “There's more interest than actual action,” Darling said. But that interest, she added, is “intense.”

Darling said employers and health systems are now better prepared for direct contracts after recent investments to diversify operations to include complex services typically undertaken by insurers, such as claims processing or contract negotiations.

Intel joins Wal-Mart in this latest move to use more muscle and talk directly with health systems. The Bentonville, Ark.-based retail giant said last October it would fly insured employees who need certain heart, spine and transplant operations to six health systems with strong quality measures for those operations. Wal-Mart workers will pay nothing for medical care or travel to those centers.

Meanwhile, some provider systems are investing in strategies to capitalize on employers' demand for more savings and companies' willingness to work more closely with providers.

One of the largest U.S. health systems is expanding into insurance markets with plans to contract directly with some employers. Catholic Health Initiatives, Englewood, Colo., recently acquired a majority stake in a Washington state insurer, and more deals by CHI are expected.

In Wisconsin, Aurora Health Care has begun to offer employers a “price guarantee” under new contracts with Aetna that began in January. Employers that enter into the price-guarantee deals could see costs drop 10% on average, according to Aetna.

Other observers say direct contracting between employers and providers to provide all employee healthcare will take time. Steven Glass, chief financial officer for the Cleveland Clinic, said his system will “migrate down that path” but that existing contracts with multiple employers such as Lowe's, Boeing and Wal-Mart are more limited in scope.

In New Mexico, Intel and Presbyterian worked for about a year to reach an agreement. The contract includes quality measures such as patient satisfaction, how quickly nurses' respond to patients' requests, and how often adults complete a depression screening tool.

In early talks with Presbyterian, Intel officials bluntly described the wide variation in costs and healthcare delivery they found after analyzing healthcare claims across the company, said Presbyterian President and CEO Jim Hinton. They told him Intel couldn't sell its computer chips if their quality and costs varied as much as healthcare quality varied.

Employers and insurers increasingly are turning to narrow-network plans as a way to hold down costs and improve quality. Narrow networks generally require enrollees to pay more or all of the medical bills if they seek care outside the network compared with doctors and hospitals inside the network. Many health plans offered on the new state insurance exchanges this fall are expected to feature narrow networks.

Lisa Goldstein, an analyst with Moody's Investors Service, said narrow networks are not without risks as providers typically agree to rate discounts in exchange for potential volume. Such contracts likely will undergo modification and corrections as providers gain experience, she said.

Follow Melanie Evans on Twitter: @MHmevans