Boeing has expanded its direct-contract ACO to Southern California, where the company is surprisingly the state’s first employer to enter an ACO contract that leaves health insurers out of the equation.

There have been plenty of employer-backed ACOs in the state. The first and most successful were formed by large purchasing groups such as CalPERS and the San Francisco Health Service System. But those ACOs have all used an insurer, Blue Shield of California, to manage the risk.

Prior to expanding its ACO model to California, Boeing had already set up direct-contract ACO agreements with health systems in Seattle, where it first launched this model, and then expanded it to Charleston, S.C., and St. Louis, Mo.

California’s only recent initiation into the small direct-contract ACO club is probably because it has long offered employers the ability to save money and have providers take on risk through capitation under the HMO model. The state’s first commercial ACOs involved HMOs, and more recently providers and payers have ventured into the new frontier of ACOs involving PPO plans, which present the challenge of getting patients with access to broad provider networks to stay with certain providers. This conundrum has been a problem for many Pioneer and Medicare ACOs. Add to that the issues with the way the benchmarks were set up in the Pioneer program, and you have the reason California now has only one Pioneer ACO remaining.

Boeing’s continued expansion of the direct-contracting model indicates the company is seeing some positive signs from this new model. But Boeing is admittedly aware that only time will tell if ACO results are favorable because it is a long-term investment into employee health.

Many expect more self-funded employers to follow this path because they see health plans as the middle man taking money out of their pockets. At the same time, many health systems have been preparing to be able to offer the full continuum of care needed to be part of a direct-contract ACO.

Boeing’s new arrangement with MemorialCare Health System in Orange and Los Angeles counties puts the health system on the hook for profits and losses. It also offers employees a reason to choose the plan: lower premiums, no copays for primary-care visits, increased company contributions to health savings accounts, full coverage for generic drugs, and the freedom to choose specialists without a primary-care physician referral (a key difference from the HMO). That’s a recipe for steering more patients toward MemorialCare.

The direct contract model is not just being offered by Boeing. Intel has an arrangement with Presbyterian Healthcare Services in New Mexico that could be expanded to the employer’s other markets, and Lowe’s and Wal-Mart have medical tourism direct-contract bundled payment arrangements with specific hospitals for certain surgeries. Expect more of these in 2017 as large employers look to circumvent health plans by making deals directly with providers to save costs.

Jenny Kerr is a senior analyst at DRG and an Employer Benefit Trends expert. Follow her on Twitter at @JennyKerrDRG.

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