Open Letter to Wendell Potter RE: Cutting Out the Middleman

An open letter to Wendell Potter, a Senior Fellow at the Center for Media and Democracy, and ex-PR VP at Cigna, who's now speaking out against the insurance industry's efforts to kill healthcare reform. This letter appeared as a post on Wendell Potter's blog.

Mr. Potter, I applaud your efforts on behalf of the CMD and would like your thoughts on one solution that's been entirely overlooked amidst the healthcare reform debate: Employers eliminating the managed care middleman and contracting directly with doctors and hospitals.

For the past 15 years, I've been working with major self-insured employers, negotiating direct agreements between those employers and medical providers as an alternative to conventional PPO networks. Coincidentally, one of my largest clients, a company with over 40,000 covered lives, was with Cigna when they opted to develop their own direct networks instead of using Cigna's PPO networks.

With direct networks now across 14 states, my client's medical trend has been essentially flat for the past 9 years, while companies their size suffered increases of 10% or more each and every year. This client's employer-owned networks, built upon fair "win-win" agreements, are stable and well-liked by providers. Compare that to the openly contentious and adversarial relationships you and I know exist in virtually every commercial PPO network.

The huge savings this particular employer has achieved by having its own direct networks for the past 9 years has allowed it to maintain a relatively rich medical benefits plan, with low deductibles and without shifting costs onto employees.

Incidentally, this employer uses a third party administrator (TPA) to process its claims according to the reimbursement and contractual terms of the direct agreements, as well as the UR, pre-cert, and case-management components. In this case, the TPA works for the client, and has no middleman loss-ratio to protect, so the admin costs are a fraction of what they run with Cigna.

I invite you to peruse the articles about the success of this approach that appeared in the WSJ, Business Insurance, Employee Benefits Review, and the Kiplinger Letter. Many of these are available at my website, AJLester.com.com, in the Resource Center-Newsroom.

For years, managed care companies have disdained my efforts to help employers bypass PPO networks by contracting directly with providers. Even Cigna tried to dissuade my client from developing their own networks, a story I'll share with you off-line, if you're interested.

Unfortunately, the insurance companies have done such a bullet-proof job as middlemen, that most doctors and employers believe there is no other way for them to do business with each other than through a managed care company. Ironically, the very first people that my prospective clients consult with about the idea of direct contracting is....you guessed it, their insurance company. Coming from Cigna, I'm sure you know how quickly employers can be talked out of that idea.

So, notwithstanding your background as a managed care guy, what are your thoughts about employers cutting out the middleman and contracting directly with doctors and hospitals? Shouldn't it be promoted as an alternative to commercial PPO networks? It's still a "private-payer" approach, which should appease opponents of the "public option". But the private part of it really is private. That is, between the employer as buyer and the medical provider as seller, without need of a middleman.

Lastly, is anyone else you know talking about this approach? If not, why not? If it's because no one thinks it'll work, where is that message coming from? There are companies out there, albeit not a huge number, who can tell a compelling story about the success of this approach. Is it possible to get people to listen?

Many thanks in advance for whatever insights you can lend.