Direct Contracting: Not New, But New Interest

Direct contracting is not a new concept: Cut out the insurers as middlemen and work directly with providers on more integrative health and aligned metrics. But companies are newly exploring different ways to implement it and fully realize the benefits.

Michelle Zettergren

About 75% of employers already use some form of direct contracting, and 41% say they will likely consider it in 2025, according to a 2024 Brighton Health Plan Solutions and HR Dive survey. Of the 150 respondents, approximately 60% were from companies with fewer than 5,000 employees, and nearly 20% of survey participants were at companies with at least 10,000 employees.

The COVID-19 pandemic increased interest in direct contracting, says Michelle Zettergren, chief sales and marketing officer at Brighton, which brokers direct contracting deals, handles third-party administration and offers other services. During the pandemic, she says, many providers began connecting directly with employers on healthcare access initiatives.

Another reason for the quickening interest: Increasing healthcare system consolidation and electronic medical records investments, resulting in the ability to expand integrated delivery, she says.

A new model

With direct contracting, employers work with physicians or provider groups to offer specified healthcare access in exchange for negotiated payments. The goal is to bypass traditional fee-for-service insurance claims and have clinicians provide greater care navigation, oversight and more integrated care.

Elizabeth Mitchell

Purchaser Business Group on Health (PBGH) just launched what it says is a first-of-its-kind employer-sponsored insurance approach. It helped several employers in the Seattle area create common contracting standards. As a result, these employers have teamed up and are contracting together with multiple providers. The program went live in November with Boeing’s 70,000 Seattle-area employees. Several other employers, including eBay, will come online early in 2025. The program features an advanced primary care (APC) approach that integrates primary care, behavioral health and physical therapy.

“Self-insured employers who are part of PBGH have been remarkably frustrated with the state of healthcare,” says Elizabeth Mitchell, president and CEO of PBGH. With healthcare typically an employer’s second-largest expense, annual costs have been increasing by double digits without a corresponding increase in quality, value or access, she says.

PBGH and the employers started with an APC workgroup to identify, define and measure best practices. They created contracting standards and performance measures to reflect their priorities, writing a common purchasing (contracting) template. PBGH ran a pilot program in Mesa, Arizona, more than a year ago. The results were compelling to launch the Seattle-area program, which involves more employers and can add others to the mix.

Many benefit

eBay employs only 700 in the Seattle region. Working with Boeing and other companies on direct contracting reduces the administrative lift for all of the involved employers because they share a common contract. Several other large employers are also participating, but Mitchell says she cannot share their names. The companies are coming together in the spirit of driving system improvement, she says, even though some of the employers have far fewer employees involved than others. “It’s not going to just be an improvement for Boeing employees. If they improve delivered care, everyone benefits,” she says.

With direct contracting, employers can negotiate metrics and quality targets. When PBGH employers designed their program, they first aligned on quality standards, and Mitchell says a key metric was to measure depression and depression remission. This requires providers to offer integrated mental health in their practices.

Although cost is important, it is secondary to identifying high-performing practices, Mitchell says.

Although providers may have to change their practices to win these contracts, the trade-off is lower administrative burden and participation in alternative payment models. Providers can also use these contracts to grow their practices.

The larger the employer, the greater the opportunity to negotiate practice requirements. Ideally, employers can inform providers about health issues prevalent in their employee population so the provider can offer programs based on those needs, says Zettergren. For example, an employer with many truck drivers in its workforce may want to focus on weight management, diabetes or back problems. “It allows the health system to work with the employer to establish a customized approach,” she says.

With greater data transparency for employers and clinicians, practices can be proactive. Zettergren notes that in traditional settings, providers may not know a patient has diabetes until they come for an office visit. In direct-to-provider solutions, providers can conduct proactive outreach for those with diabetes, getting them into the office and focusing on treatment adherence. That can be a win-win-win for the employer, member and clinician.

All or nothing?

A direct contracting model does not have to be an all-or-nothing solution. Employers can start with a centers of excellence program for a specific service. Or they can start with an APC model, such as PBGH’s, in which employees have choice: participate with no copays or continue using the traditional fee-for-service care.

The PBGH APC model does not include direct contracting with specialists, Mitchell says, but “we’ve included an integrated solution with partner APCs that streamlines specialist referrals so that specialists are vetted for quality and access while delivering a coordinated patient experience.” She is seeing growing employer interest in setting up direct contracts for specialists.

Zettergren has seen some success with centers of excellence programs that work with members to identify providers with the best outcomes and provide care navigation and recovery services. Zettergren says Brighton has some clients with centers of excellence contracts that guarantee there is no cost to the employer if a member is readmitted to a hospital. To ensure the best outcomes and lowest costs, surgeons are often handpicked by the health system to participate.

Large employers

The percentage of PBGH members using direct contracting is strikingly different from the Brighton survey. Mitchell says that about 20% of PBGH members have used direct contracting for decades. “It’s not a new strategy,” but the conditions must be right, she says. Employers need to feel confident in their data, analytics and contracting capabilities. Traditionally, employers rely on consultants or vendors to set up and run the direct contracting models, Mitchell says, but with the PBGH model, “employers are prepared to take on a more proactive role.”

In direct contracting, payment to providers can be on a per-employee per-month basis. Another version pays a flat fee for particular procedures. For PBGH, the clinical organization is paid monthly for each patient they are responsible for, regardless of the number of visits, Mitchell says. The fee covers the primary care clinician and other whole-person care services, including integrated behavioral health, physical wellness, on-site labs, on-site dispensing of certain medications, patient navigation and after-hours care team access. Each clinic is also incentivized with bonuses for certain health outcomes, she says.

Direct contracting works better for larger employers because providers are more willing to cater to their needs than a small one. But even smaller companies can enter into direct contracting through more standard plans, notes Zettergren.