Specialty Care Carve-Outs: Leveraging Centers of Excellence and Direct Contracts for Cost Savings

Introduction

Self-insured employers are increasingly looking for ways to manage rising healthcare costs, particularly in specialty care, which represents a significant portion of overall healthcare spending. A report from the Health Care Cost Institute indicates that specialty care accounts for approximately 35% of total healthcare spending for employers. One effective strategy to mitigate these costs is the use of specialty care carve-outs, specifically through centers of excellence (COEs) and direct contracting.

Understanding Specialty Care Carve-Outs

Specialty care carve-outs involve separating high-cost specialty services from the standard health plan offerings. This allows employers to negotiate directly with specialized providers or facilities that focus on specific medical procedures.

What are Centers of Excellence?

Centers of Excellence (COEs) are healthcare providers recognized for their quality and expertise in specific areas of care. Employers often partner with COEs to streamline access to high-quality specialty care while controlling costs.

• Benefits of COEs:
  • Higher quality care leading to better patient outcomes.
  • Reduced complications and readmission rates.
  • Cost transparency and predictable pricing models.

Cost Savings Through Carve-Outs

Self-insured employers can achieve significant savings by directing employees to COEs for high-cost procedures. For example, a total joint replacement can cost between $30,000 and $50,000 depending on the facility. However, COEs often provide these services for roughly 20% to 30% less due to their focus on efficiency and quality care.

Real-World Examples

• Example 1: A self-insured employer with 5,000 employees implemented a COE program for orthopedic surgeries.

  • Savings: The average cost per procedure dropped from $40,000 to $30,000.
  • Annual Savings: With 100 surgeries per year, this resulted in $1 million in annual savings.

• Example 2: Another employer focused on cardiac care through a COE.

  • Cost Comparison: Traditional facilities charged $80,000 for a bypass surgery, while the COE charged $60,000.
  • Annual Volume: With 50 surgeries annually, the employer saved $1 million.

Direct Contracting with Specialty Providers

In addition to COEs, direct contracting with specialty providers is another strategy that self-insured employers are adopting.

Benefits of Direct Contracting

• Cost Control: Employers can negotiate fixed prices for procedures, eliminating surprise billing.
• Quality Assurance: Employers can select providers based on quality metrics rather than insurance networks.
• Simplified Billing: Direct contracts often lead to streamlined billing processes.

Negotiating Direct Contracts

When negotiating direct contracts, employers should consider the following:

• Volume Discounts: Commit to a certain number of procedures to negotiate better rates.
• Bundled Payments: Consider bundled payment models that cover all costs associated with a procedure.
• Performance Metrics: Include quality and outcome metrics to ensure value is delivered.

Example of Direct Contracting

A self-insured employer negotiated a direct contract with a specialty hospital for knee surgeries.

• Contract Terms: The employer agreed to a bundled price of $25,000 per surgery.
• Volume: With an estimated 150 surgeries per year, this contract saved approximately $750,000 annually compared to traditional fee-for-service models.

Implementing Specialty Care Carve-Outs

To successfully implement specialty care carve-outs, self-insured employers should follow these steps:

1. Data Analysis: Analyze healthcare spending to identify high-cost procedures.
2. Select COEs: Research and vet potential COEs based on quality and cost metrics.
3. Negotiate Contracts: Establish direct contracts with COEs and specialty providers.
4. Communicate with Employees: Educate employees about the benefits of using COEs and the process for accessing care.
5. Monitor Outcomes: Regularly review outcomes and savings to ensure the effectiveness of the program.

Bottom Line

Specialty care carve-outs through centers of excellence and direct contracting present a valuable opportunity for self-insured employers to manage high-cost procedures effectively. By focusing on quality, negotiating better rates, and improving employee access to care, employers can achieve substantial savings and improve patient outcomes. Start analyzing your specialty care spending today to identify opportunities for carve-outs that can lead to significant cost reductions.