Massachusetts Employers May Bypass HMOs in Favor of Direct Contracting

Faced with health insurance premium increases that are expected to range between 12% and 14%, two organizations representing more than 6,000 Massachusetts employers are evaluating the feasibility of "bypassing HMOs and contracting directly with hospitals and doctors" for health care, the Boston Globe reports. Associated Industries of Massachusetts and the Massachusetts Healthcare Purchasers Group have hired Patient Choice Healthcare to produce within 90 days a "feasibility study" that examines whether direct contracting -- which Patient Choice has organized in Minnesota, Oregon and Colorado -- would work in Massachusetts. Under such programs, physicians and hospitals create networks that contract individually with employers, offering them projected costs based on their fees and employees' medical histories. Premiums are then set by employers using the above factors and others, including patient satisfaction. The Globe reports that the "idea is for provider networks to compete directly with each other based on cost and quality." Patient Choice said that health care costs have risen eight percent annually for their groups, while costs have increased 10% annually for HMOs.

Potential Problems
AIM president Richard Lord said that it is "unclear" whether direct contracting will work in Massachusetts, because people there "demand access to" the state's large number of teaching hospitals. Jon Kingsdale, senior vice president for planning and development at Tufts Health Plan, the state's second-largest HMO, said that establishing a direct contracting program in Massachusetts may be more difficult than it was in Minnesota, where most doctors were already organized in networks that "naturally formed contracting groups." He added that Massachusetts "consumers have traditionally demanded broad[er] choice" than direct contracting would allow. Charles Baker, CEO of Harvard Pilgrim Health Care, questioned whether direct contracting saves money, pointing out that "someone has to handle administrative functions," even if it is not "an HMO acting as intermediary." "A lot of people underestimate just how complicated this business is," he said (Kowalczyk, Boston Globe, 11/2).