Some large employers contract directly with medical groups to reduce health care costs

Investor's Business Daily on Monday examined how some large employers, such as Sprint Nextel and Waste Management, have begun "cutting the middleman in heath insurance" and have "signed direct-contracting deals with medical groups instead of insurers" to help reduce costs.

Under such agreements, employers directly pay medical groups to provide health care to employees, a practice that "eliminates the need to wrangle with insurers over plans and rates," and employees continue to have payroll deductions and make copayments, the Business Daily reports.

According to the Business Daily, such agreements first appeared in the late 1980s, when "HMOs came under fire for putting profit before patient health," and have "gotten recent attention in no small part because of rising health care costs."

Waste Management in 2005 decided to contract directly with the Kelsey-Seybold Clinic to provide health care to employees after a report found that the agreement would cost 16% less than a contract with a traditional health insurer.

Since 2001, Sprint has contracted directly with physicians and four hospitals to provide health care to employees at the company headquarters in Overland Park, Kan., an agreement that costs 5% to 10% less than a contract with a traditional health insurer, according to Collier Case, director of health and productivity at Sprint.

However, health care experts "don't expect direct contracting to be a universal solution to health insurance inflation because local medical groups don't have the capacity to reduce prices" on a large scale, the Business Daily reports (Benesh, Investor's Business Daily, 8/28).