Direct contracting surge: 75% of employer health plans contract directly with providers

A new survey has found that 75% of employers reported being involved in direct contracting with health care providers for their health plan members, and another 41% said they would consider direct contracting by 2025.

These numbers suggest a broader embrace of the concept of direct contracting, where employer-sponsored health plans contract directly with health care providers, than some in the industry may have predicted.

The survey, conducted by HR Dive and Brighton Health Plan Solutions, polled 150 benefits executives on their attitudes and experiences with direct contracting.

Michelle Zettergren, chief sales and marketing officer at Brighton Health Plan Solutions, agreed that the results show more inclusion of direct contracting than many would expect. But she noted that many perceive the practice as a good strategy to save on health care spending. “These results are somewhat surprising and certainly suggest a wider interest in direct contracting than previously understood by the market,” Zettergren said. “The top two reasons respondents said this strategy has become more popular were that direct contracting allows employers to enhance benefit offerings for employees (49%) and that it provides another strategy to control rising health care costs (47%).”

Zettergren added that the high acceptance numbers also may reflect a higher response rate from large employers. That type of employer may be more likely to consider direct contracting than smaller employers.

High approval, but a hunger for more information

The survey also found that only 40% of respondents said that health systems and provider groups had discussed direct contracting with them. “This indicates employers seem to be a receptive audience, so provider organizations may need to increase their planned outreach to them. Third-party administrators may need to help jump-start those conversations,” the report said.

Zettergren said that direct contracting can be a powerful tool, when matched with other strategies, for addressing cost, quality, and value concerns for employer-sponsored health plans. “This is because employers expect to partner with fully integrated provider organizations that have robust primary care networks to better coordinate care,” she said. “Such organizations are often already set up to provide their direct customers with data and information transparency that will inform benchmarks, quality metrics and incentives specific to the employer.”

Again, larger employers may have an advantage on the logistics side. They also have more flexibility to negotiate multiple contracts, which Zettergren said is a common practice.

“The employers we support frequently tailor their health plan strategies to align with their employees’ needs,” she said. “This customization may involve a tiered benefit design that incentivizes members to select providers within the directly contracted health system over non-preferred providers. Some employers enhance their direct contract with a national travel network to ensure coverage while employees are traveling. Others opt for a direct contract in more populous regions and a traditional plan in smaller areas. For large employers with significant employee populations across multiple states, negotiating direct contracts with various health systems is a common approach.”

Cost reduction a priority

The survey found that employers were looking for cost reductions between 6% and 20% from direct contracting—76% of employers said they wanted to see that range of savings when compared to traditional health plans.

The study also found that in addition to cost savings, employers are interested in provider/health care incentives, and shared risk.

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“Employers want to save on their current costs, and they’re open to partnering with provider organizations who can offer shared savings arrangements,” the report said. “To generate savings for employers in both the short- and long-term, provider organizations should assess their unit costs and explore what medical management programs they may need to implement.” Zettergren noted that although many consumers want as much choice as possible, cost is an important issue for everyone.

“It really comes down to considering the value of integrated care versus fragmented care,” she said. “Although open PPO networks might appear to provide more options for employees, direct contracting ultimately enhances their quality of care. Unlike the fragmented care often found in PPO networks, integrated care through direct contracting offers better care coordination, reduces duplication, and fosters increased interaction between patients and providers.”