If needed, employees are referred for specialty care to a group of preferred providers who are paid predominantly through direct contracts. Gamber-Johnson used one of its preferred providers rather than a large health system for an employee with an elbow issue, leading to a less invasive procedure that cost $16,000 instead of $50,000, said Phillip Blair, director of human resources.
"Having a direct primary care model allows you to control the downstream referral funnel, which is where you can really save money and improve care," he said. "That’s where hospitals get you, when a primary care physician at a hospital refers you within their system and an MRI costs $5,000 instead of $500 at an independent provider."
Since 2020, Gamber-Johnson has saved more than $500,000 and held premiums relatively flat, Blair said. In addition, the annual checkups have caught medical problems earlier, improving care quality and outcomes, he said.
In Indiana, an increasing number of businesses are implementing tiered and narrow networks and direct contracts with providers, said Gloria Sachdev, president and CEO of the Employers’ Forum of Indiana, a coalition of employers.
The move is driven by a wide variation in prices for common procedures and growing employer healthcare costs. A 2022 RAND Corp. analysis of claims data found that Indiana's hospital prices were the seventh highest in the country, and varied more than three-fold for some common procedures.
Purdue University used RAND data to inform its direct contract with Mishawaka, Indiana-based Franciscan Health. Since 2020, Franciscan has performed hip and knee replacements for Purdue employees, helping the university improve outcomes and reduce costs.
As part of the agreement, Purdue arranges and funds travel and overnight accommodations for employees who get procedures done at Franciscan Health’s Mooresville or Carmel location, in addition to a $500 cash payment following the surgery. A Purdue spokesperson said the university is considering whether to extend the length of the agreement, noting that Purdue has other direct contracting arrangements.
The push from employers to lower healthcare costs also is driving state legislation.
An Indiana law that took effect in May prevents nonprofit health systems with more than $2 billion in annual revenues from charging facility fees at outpatient facilities. Next year, the employer coalition will support legislation that aims to improve sharing of claims data between health plan administrators and employers, as well as legislation that would eliminate anticompetitive contract terms between health systems and insurers, Sachdev said.
Meanwhile in Texas, a law passed this year bans the use of anti-steering terms in contracts between providers and payers.
“Employers, alone, don’t have enough market power," Sachdev said. "Some pressure has to come from policy.”
Some trade associations argue that hospitals, especially those in rural communities, need to increase prices to maintain unprofitable, high-need services amid the financial pressure spurred by rising labor costs and waning Medicare reimbursement. The American Hospital Association, for instance, has described studies from research organizations like RAND, which benchmark negotiated rates between providers and insurers to Medicare reimbursement, as flawed because Medicare doesn’t pay for the full cost of care.
Still, employers have a growing supply of pricing data to guide their health plan benefits design and legislative efforts. Employers, sometimes with the help of third-party data analysts, are using the transparency data along with other sources such as RAND's research and the National Academy for State Health Policy cost tool to demand that high-priced providers in their markets reduce prices.
Employers hope the new pricing tools can help curb healthcare cost growth. Nationally, annual premiums for employer-sponsored family health coverage reached $23,968 in 2023, up 7% from $22,463 in 2022, according to KFF. Average premiums for family coverage have risen 47% since 2013, outpacing the 42% wage growth over the same period, KFF found.
“Employers are getting more engaged and starting down a path of trying to get all the data together. Once they are grounded in data, they can do some steerage or direct contracting,” said Marylin Bartlett, senior policy fellow for the National Academy for State Health Policy. “I do think their efforts will lead to lower healthcare costs.”
The Washington Health Alliance, a coalition of employers, unions and other healthcare purchasers, has been using data to inform a bill that would bolster the authority of the state’s healthcare cost transparency board, said Denise Giambalvo, director of member engagement and business strategy for the alliance. Next year, the alliance plans to back legislation that addresses facility fees charged by hospital-owned outpatient departments, she said.
“Employers are going to be speaking up more, convening with hospitals and paying closer attention to national and state-specific legislation,” Giambalvo said. “Employers are not interested in shifting any more costs onto their employees.”
But not all agree that employers will help slow healthcare cost growth. The Colorado Purchasing Alliance was formed in 2020 to try to rein in healthcare costs. But the alliance hasn’t garnered enough support from employers, in part because it is easier to outsource the work of negotiating healthcare prices to insurance companies, said Robert Smith, former executive director of the alliance.
“Most of the business coalitions have played around with benefit design, but all that is going to do is penalize employees. It’s not going to bend the cost curve,” he said.
Burgeoning efforts by some employer groups and states are just the start of the employer-led movement to lower healthcare costs, said Elizabeth Mitchell, president and CEO of the Purchaser Business Group on Health, a coalition of 40 major employers such as Walmart, Microsoft and Boeing.
Some members have gone directly to hospitals with the publicly available rates negotiated with insurers and renegotiated their contracts, she said.
The business group launched a direct contracting program between employers and providers for advanced primary care and referrals to specialists. The pilot program, which launched in Phoenix earlier this year, has led to a increase in access to care, decline in costs and decrease in unnecessary inpatient admissions, Mitchell said.
“I expect more of our members to purchase healthcare directly through [accountable care organizations], specialty physician groups and hospitals because of their growing frustration with incumbent legacy partners,” she said.