Direct Contracting Mythbuster

Mythbuster: Direct contracting will never become a real trend.

January 14, 2020

The health care marketplace continues to evolve, as health care organizations consolidate and experiment with new value-oriented models. As these new strategies emerge to drive high-value purchasing, there has been increased attention on direct contracting relationships between purchasers and providers.  “Direct contracting” is a contracting strategy between self-insured employers or other health care purchasers and a provider organization (i.e. a large health system), in which both parties directly negotiate how the provider will deliver specified services to the employer’s covered lives. This arrangement bypasses the health plan or insurer.

Myth #1: It’s just a flash in the pan.

Direct contracting will never become a real trend – just a series of anecdotes

It is true that today very few employers or other health care purchasers have direct contracts with health care providers; however, three different surveys of employers over the last couple of years suggest this practice is truly becoming a trend.

  • The latest Kaiser Family foundation Employer Health Benefits Survey found that among large employers with at least one self-funded health plan, 8% contract directly with certain health plans or health systems, outside of their established provider networks, to treat patients with specified conditions.
  • The Willis Towers Watson 23rd Annual Best Practices in Health Care Employer Survey released in early 2019 found that in mid-2018, 7% of employers were using direct contracting with health care systems and physicians to secure improved pricing of medical services and that this number could triple by 2020.
  • According to the 2020 Large Employers’ Health Care Strategy And Plan Design Survey by the National Business Group on Health, a growing percentage of employers (24%) are looking to contract directly for advanced primary care in select markets.

We featured an example of this in a recent case study (not to mention our Virtual Summit: Are Disruptive Health Care Purchasing Strategies Becoming the New Normal?) and will release another this year based on the subject covered in one of our webinars.  We have also released an online education course to help employers and other health care purchasers learn about direct contracting, determine if it’s the right approach, and walk them through the implementation process.

Myth #2: It’s only for a select few.

Employer-purchasers who can’t handle it on their own shouldn’t try

It’s true.  Health benefits managers are busy and their teams are often too small to handle the burden of designing and implementing a direct contract.  Enter a variety of alternative third-party administrators and entrepreneurial vendors who negotiate and contract with the provider on the employer’s behalf.  These “semi-direct” contracting arrangements enable an employer-purchaser to pursue new models of care, such as a narrow network, a bundled payment program, and/or center of excellence for a particular procedure.  If a purchaser desires the benefits that come from direct contracting, but needs support in design and implementation, semi-direct contracting through a vendor may be a good option. We have profiled such examples in another recent case study and webinar.

Myth #3  Employees won’t support it.

Direct contracts mean steering employees and they don’t like it

Again, it’s true…but only to a certain extent. By nature, a direct contract arrangement with a particular provider or health system often requires employees to seek care from that contracted provider (considered in-network) in order to reap the benefits of higher quality care and favorable cost-sharing and other benefits (e.g. navigation support, extended primary care access, etc.). However, employees are not necessarily averse to this.

  • Over time, if there are positive experiences with the provider and the associated benefits program, such as a center of excellence program or a direct contract with an ACO that serves as a narrow network, use by employees or enrollment tends to increase. 
  • Associated with the prior point, having a strong communications strategy can help purchasers communicate the value of the provider (e.g. a COE) to employees. This can dispel notions that the employer is trying to steer employees to the provider merely to cut costs. It can also encourage employees to seek care from the provider due its higher quality care and superior outcomes.
  • The latest Kaiser Family Foundation Survey found that almost 25% of large employers (considered 5,000 or more workers) are offering a narrow network plan product, signaling that the use of network and benefit design to steer patients toward certain providers is gaining traction nationwide. As the concept of in-network and out-of-network becomes more familiar to employees, it will likely lessen the averse feelings associated with them.

Ready to learn more about direct contracting? Enroll in CPR’s fresh online education course: A purchaser’s guide to direct contracting.

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