In another sign of growing frustration with rising health costs, aerospace giant Boeing Co. has agreed to contract directly for employee benefits with a major health system in Southern California, bypassing the conventional insurance model.
The move, announced Tuesday, marks the expansion of Boeing’s direct-contracting approach, which it has already implemented in recent years in Seattle, St. Louis and Charleston, S.C.
Other large employers are also pursuing this idea in regions where they have big concentrations of workers. In some cases, they refer employees to nationally top-performing hospitals for select surgeries.
MemorialCare Health System said Chicago-based Boeing selected it from a group of bidders for the five-year contract in Southern California, where the company has roughly 37,000 employees and dependents. Financial terms weren’t disclosed.
“More employers are interested in moving in this direction,” said Barry Arbuckle, chief executive of the MemorialCare Health System, based in Fountain Valley, California. “It reflects the desire of these employers to participate in bending the cost curve for health care, and it allows the provider to have a more unfettered relationship with the employer and employees.”
The new health plan will be offered to Boeing workers in Southern California during open enrollment this fall alongside some existing options, including a Kaiser Permanente HMO. Coverage starts Jan. 1.
MemorialCare, a large integrated health system spanning Los Angeles and Orange counties, partnered with other hospital systems and physician groups to create a broader network.
The partners include UC Irvine Health, Torrance Memorial Health System and PIH Health.
This MemorialCare Health Alliance will include nine hospitals, about 2,400 physicians and other providers, as well as 71 surgery centers, urgent-care facilities and other freestanding clinics.
“MemorialCare and its partners have a long track record of health care leadership and innovation in Southern California, as well as a strong market presence,” Jeff White, Boeing’s director of health care strategy, said in a statement. “Creating these partnerships is one of the innovative ways we are managing our health care programs to improve quality and efficiency.”
Boeing and other self-insured employers have typically hired health insurance companies to contract with hospitals and doctors and design their employee benefits. As medical costs kept escalating, employers and health insurers often narrowed their networks to negotiate lower rates and shifted more of the costs onto workers through higher deductibles.
Direct contracting is seen as another way to potentially save money while improving care and patient satisfaction.
In these contracts, health systems usually take on the financial risk of managing the health of a large population. The provider groups are often organized as accountable care organizations, in which physicians and hospitals share the financial responsibility for coordinating care and avoiding unnecessary spending.
This MemorialCare ACO designed for Boeing must meet numerous performance measures of quality, access and savings, Arbuckle said.
The Boeing contract “allows us to earn certain incentives or, if we don’t meet certain criteria, incur a loss on that particular aspect,” Arbuckle said. “There is no incentive to keep people in the hospital and go to multiple specialists. For us, this is where health care needs to go.”
Steve Valentine, vice president and West Coast consulting leader at health-care firm Premier Inc., said MemorialCare was a logical fit for Boeing, but plenty of health systems will be competing for these types of contracts.
“Most health systems have been building up their infrastructure to do exactly this kind of relationship,” Valentine said.
MemorialCare won’t have to handle all of the administrative chores of an insurer. Boeing uses its national insurance administrator, Blue Cross and Blue Shield of Illinois, to process claims for its direct contracts.
Boeing will offer workers several incentives to choose this new provider-backed health plan in California.
Enrollees will have no copays for primary-care visits. They will get full coverage for generic drugs and the freedom to choose specialists within the network without a referral. Emergency care will be covered as in-network even if it’s received outside MemorialCare. Boeing will also offer increased contributions to workers’ health savings accounts.
In other examples, Intel Corp. contracted directly with a major health system in New Mexico, where it has several thousand employees.
Retailers Wal-Mart and Lowe’s took a different approach, striking deals with select hospitals across the country for bundled prices on specific surgeries. The companies steer workers to those hospitals.