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February 7, 2002

Direct Contracting Health Plan Cuts Costs, Not Quality

Employer Coalition Eliminates Middle-Man Insurance Companies and HMOs

A health care plan devised by a coalition of Minnesota employers seems to cut costs without sacrificing quality, according to a study conducted by researchers at the Johns Hopkins Bloomberg School of Public Health. The study, which appears in the January/February 2002 issue of Health Affairs, is the first scientific evaluation of the direct contracting health plan and suggests the plan may be a successful health care delivery model for the future.

For the study, the researchers examined the Choice Plus plan formulated by the Buyers Health Care Action Group (BHCAG), a coalition of Saint Paul and Minneapolis businesses. Under the Choice Plus plan, the regions employers combined their buying power to purchase health care services directly from hospitals, physician groups, and other health care providers. Employees may then choose the providers they wish to use.

"Direct purchasing attempts to give employees, rather than employers, the ability to choose their health care providers by cutting out the middle-man insurance companies," explains lead author Alan Lyles, ScD, MPH, associate professor at the University of Baltimore and adjunct associate professor of Health Policy and Management at the Johns Hopkins Bloomberg School of Public Health. "Our study shows that the Choice Plus plan offers employees options in the selection of their health care providers while containing costs and maintaining quality," adds Dr. Lyles.

Dr. Lyles and his colleagues examined computerized claims and enrollment records of 150,000 people receiving care through the BHCAG. The study analyzed the cost and usage of health care resources from 1996 to 1998 and compared a single provider health care plan used in 1996 to the first two years of the Choice Plus health plan. Only patients enrolled for six months or longer were included in the study. To assess the quality of care, the researchers tracked the progress of patients with diabetes, depression, or asthma as they achieved healthy standards for people with these chronic conditions. Consumer surveys were also used to access the satisfaction with physicians and health care providers.

After adjusting for inflation and other variables, the study found that the cost of hospital care, which is the most expensive form of health care, dropped over the three-year period, while the cost of ambulatory care rose slightly and the cost of pharmaceutical care increased more sharply. Overall, the BHCAG spent an average of $120 per month for each member, while the average Minnesota HMO spent $152 per month for each member.

The researchers also observed that the quality of treatment for depression, asthma, and diabetes remained stable or improved over the study period. Patients met or exceeded the standards for medical services for someone with one of these chronic conditions. Use of preventive care measures, such as flu shots, cholesterol screening, and colorectal examinations, also remained the same or increased over the study period.

Dr. Lyles and his colleagues caution that the study only examines a single employer-purchasing group and that more long-term research is needed.

"Our study shows that the direct purchasing model works well and can control costs. It represents an innovative health care model for the 21st century that provides a real alternatives to today's managed care," explains co-author Jonathan Weiner, PhD, professor of health policy and management at the Johns Hopkins Bloomberg School of Public Health.

"Cost And Quality Trends In Direct Contracting Arrangements, written by Alan Lyles, Jonathan P. Weiner, Andrew D. Shore, Jon Christianson, Leif I. Solberg, and Patricia Drury, appears in the January/February 2002 issue of Health Affairs.

The study was funded by a grant from the Robert Wood Johnson Foundations Changes in Health Care.

Public Affairs Media Contacts for the Johns Hopkins Bloomberg School of Public Health: Tim Parsons @ 410.955.6878 or