While we’re fortunate to live in a time when the headlines announce with increasing frequency that medical science has found a new cure or therapy to treat or manage previously incurable conditions, every patient who needs one of these treatments and every employer who provides health insurance understands that these advancements come at a cost. Employees can’t afford to work for employers that don’t offer healthcare benefits, and employers are seeing the cost of providing those benefits increase at a pace that far exceeds overall inflation. Government initiatives to curb costs and modify behaviors in this marketplace can be challenging to implement, given the political landscape, and even those programs that do win bipartisan support often have unintended consequences once implemented.
Employers seeking a healthcare solution that provides more support for employees while also providing more control over costs are increasingly turning to a direct primary care model. This model delivers more effective care to employees at a more affordable price.
Legacy systems are fraught with challenges that drive up costs
The health insurance market is becoming less sustainable for a variety of reasons, including:
- Insurance carriers are subject to medical loss ratios that govern how much of each premium dollar must be paid out in claims, forcing them to seek more clients to improve profitability. Hospital costs then get inflated, and efforts to justify these costs can seem like a form of collusion between the medical providers and the insurers, when in fact it’s just how the system has adapted to medical loss ratio requirements and shareholder demands for profitability.
- Medical providers are reimbursed on a fee-for-service basis that can incentivize quantity of care over quality. The current model has a family doctor with a patient panel of 2,400 individuals in their practice with a target of seeing 1% of their patients each day. In an eight-hour day, that amounts to 20 minutes per patient per visit. Realistically, 10 of those 20 minutes will be spent documenting each visit, which leaves only 10 minutes of actual time talking with a patient, hearing their concerns, diagnosing potential health issues, and deciding on treatments and other courses of action.
- This time limitation also drives family doctors to refer a patient out for something as basic as elevated blood pressure, for example. In the current system, the incentives make it more cost- and time-effective to pass a patient off to a cardiologist for a more in-depth evaluation than to simply prescribe blood pressure medicine and monitor their effect. The extra visits can be time-consuming and costly for patients. From an employer standpoint, an employee may need to miss work for two or three appointments each year instead of just one comprehensive annual physical.
- Pharmacy benefit managers (PBMs) have revenue incentives that don’t always align with an employer’s objectives. For example, a PBM may choose to cover a brand name medication instead of the generic because the PBM retains a portion of the rebate on the brand name medication, whereas the generic medication doesn’t generate a rebate at all.
- Insurance broker compensation model is often commission-based, resulting in the broker making more money when premiums are higher.
These misaligned incentives work against employers, but at the same time, we’re seeing significant advancements in medicine and technology that could greatly benefit the public. On one hand, gene therapy treatments are now available for conditions like hemophilia and muscular dystrophy, but the costs of developing and bringing the treatment to market are spread across a relatively small group of patients. At the other end of the spectrum, GLP-1 medications can help a broad segment of the population, but their patent protections give pharmaceutical companies wide latitude to charge higher prices.
On top of the advancements in medicine driving up costs, competition in the healthcare marketplace is shrinking as providers consolidate into larger health systems. Even if a patient takes the time to shop around for a lower cost healthcare provider, there are fewer and fewer independent primary care options available. The healthcare and health insurance systems are so entrenched in our way of life that it’s hard to build momentum behind attempts to regulate them, and when new laws or regulations are enacted, they frequently result in unintended consequences. Rather than waiting for solutions that change the healthcare landscape, employers are turning to alternative strategies that better support employee health and control costs.
Building a long-term strategic approach to managing healthcare costs
The marketplace is adapting to provide employers with new tools for employees at more manageable costs, but it takes some time and effort to understand the options and implement the changes that make sense for each business. A key first step to structuring the health plan in a way that allows for control and flexibility is the adoption of a self-insured funding model. For smaller, more risk-averse employers, level-funding may be an option. With level-funding, the overall monthly costs can be slightly higher compared to standard self-insurance, but the model provides more predictable monthly expenses.
Once an employer shifts from a typical fully insured plan to self-insurance, new strategies become available to manage costs without compromising the quality of healthcare provided to employees. A group stop-loss captive can help to protect a self-insured health plan from the very large catastrophic claims that can hit the health plan.
Self-insured employers can also contract with a transparent pharmacy benefit manager (PBM) to source medications at consistently lower prices and avoid issues that exist in the standard PBM space, such as spread pricing and pharmacy rebate retention.
A direct primary care model offers significant benefits
In addition to the group stop-loss captive and PBM options available to self-insured employers, direct primary care models have been growing in popularity as an effective way to deliver consistent, quality, healthcare to employees and their immediate family members. In a direct primary care (DPC) model, an employer effectively opens a clinic or buys time in a clinic for their employees outside of a traditional insurance arrangement. The clinic is an independent physician’s office, meaning the employer doesn’t exercise control over the clinic. This detail is important because it ensures the privacy of those using the clinic.
As noted, today’s traditional primary care model typically allows for very little time spent between the patient and doctor. With an average of less than 20 minutes per patient, doctors are incentivized to see as many patients as possible in a day, given the compensation model. The DPC model is different in that the doctors have no incentive to maximize their number of patients in a given day. DPC visits typically provide 30–60 minutes of time for the patient to spend with the doctor. They’re compensated based on a membership fee paid by the employer or the patient, with no out-of-pocket expenses when patients see their doctor.
The model also allows DPC doctors to have peer-to-peer consults with other physicians/specialists so that patient treatment can stay in the DPC office as opposed to numerous specialist referrals. Rather than refer a patient to a cardiologist that requires a separate visit, the DPC doctor consults with the specialist and works to determine if treatment can be managed within the DPC practice or if a more serious condition exists that should receive the specialist’s direct attention.
A DPC clinic provides additional opportunities to better manage pharmacy costs as well. A DPC office can purchase, stock, and dispense generic medications at cost, avoiding markups that typically apply when prescriptions are dispensed via pharmacies through traditional insurance models.
Early adoption has advantages
These strategies are delivering successful outcomes for more businesses every day. In a competitive environment where cost savings and employee retention are critical, these modifications to an employer’s health benefits offer the rare opportunity to deliver savings while also improving the quality of medical care available to employees and their immediate family members. To learn more about how a direct primary care model can benefit your business, contact your benefits advisor.
