SURGERY, STRAIGHT FROM THE SOURCE The direct contracting of health care can be a lucrative arrangement for providers and employers.

A growing number of self-insured employers are bypassing health plan administrators and contracting directly with providers. It's known as "direct contracting" when employers sidestep HMOs and go right to the source of care — physicians and other providers. Could this opportunity be right for your facility? Before planning your own direct contracts with local or regional employers, know the answers to these 5 questions.

Do your existing network agreements and payer contracts allow for direct contracting?
Facilities and physicians who are interested in direct contracting should review all of their current network participation agreements and payer contracts to ensure that they don't contain restrictions on making such arrangements with employers.

These types of restrictions can be found in non-compete or exclusivity clauses, which often require that all contracting be done through a certain network, association or accountable care organization. They may also appear in commercial payers' contracts, restricting a provider's ability to contract directly with companies that participate in the payer's network, even if it's through a network lease or other third-party administrator relationship.

Review your existing contracts early in the process of exploring the possibility of direct contracting. This will allow sufficient time to re-negotiate your agreements, if necessary, especially if the revised terms must coincide with renewal periods.

Can you offer surgical services for a fixed rate, paid in advance?
Many employers are interested in fee-for-service contracts, but the predictability of fixed "bundled payments" makes the offering all the more attractive. Your success with bundled payment plans will come down to contracts that clearly define the services that are inside and outside of the bundle.

Another important step for your planning: Conduct a legal analysis as to whether a healthcare provider which is engaging in financial-risk-bearing activities could be viewed as actually practicing insurance. The rules differ from state to state and you'll want to stay on the healthcare side of that line.

How will you enter into and administer contracts with employers?
It's often appropriate to form a new legal entity to carry out your contracting, particularly if multiple healthcare organizations are involved (which is typical in bundled payment arrangements and other integrated delivery models). This contracting entity serves as an intermediary between participating providers and employers, entering into agreements and collecting and distributing payments.

Be aware that antitrust laws restrict providers who may otherwise be in competition from joint negotiations with employers, and that establishing a new legal entity will not insulate providers from price-fixing claims. On the other hand, connecting clinical and financial integration efforts with direct contracting can, under some circumstances, permit competitors to negotiate jointly. As always, steer clear of anti-kickback violations. Research whether your direct contracting program's relationships could be seen as influencing the referrals of Medicare and other federal payer beneficiaries, and whether your state's laws can impact the way your providers work together.

How will your program fit with the benefit plan designs of prospective employer partners?
Packaging your services in a way that is attractive to the employers you're targeting often requires some understanding of benefit plan design and the federal Employee Retirement Income Security Act (ERISA) law. In recent years, many employers have been adopting benefit plans that involve high deductibles and health savings accounts. In this context, direct contracts should be structured to avoid appearing as though they're creating a standalone benefit (which would raise compliance issues with respect to the Affordable Care Act's market reform requirements) or "first dollar" benefits, which could destroy health savings account eligibility.

How will you address professional liability?
Collaborations among providers, such as those seen in the delivery of bundled care, should be accompanied by clear contractual requirements that each provider maintain appropriate levels of professional liability insurance. Indemnification agreements, which limit the responsibility of each participant for their own acts and omissions, can reassure employers who harbor concerns that they'll be blamed for steering employees to a provider in the event of a malpractice claim.

Be prepared to discuss the issue of liability coverage with employers, and to highlight such relevant information as provider-friendly tort reforms where it's applicable. It might also be useful to remind employers that the concept of steering patients to care and treatment by in-network versus out-of-network providers is hardly new and not unique to direct contracting.

Sustainable source of revenue
While setting up a new type of payer system may seem daunting, the direct contracting model can reward you with a sustainable source of revenue. It also gives you the opportunity to actively participate in process improvement and the selection of the quality metrics against which they're measured. OSM