Direct contracting
A self-insured employer negotiates reimbursement, steerage rules, and operating terms directly with a provider or platform instead of relying entirely on a carrier's PPO network and pricing stack.
Reference
Direct contracting definitions
A plain-language glossary for the terms that show up again and again in employer direct contracting: how deals are structured, how steerage actually works, and how finance and benefits teams should think about risk.
Steerage
How members are guided into a preferred path of care (a direct contract, COE, or specific facility) using benefit design, incentives, navigation, and communications.
Reference pricing
A ceiling on what the plan will pay for a given service or episode (often a multiple of Medicare). Members can still go elsewhere, but above the reference price they bear more of the cost.
Case rate
A single payment amount for a defined stay or procedure (for example, a flat allowed amount for a knee replacement admission), usually focused on the index event rather than the whole episode.
Bundled payment / episode
A price that covers the full care episode across settings (pre-op, the procedure, and post-acute care within a fixed window), with the provider accountable for complications and readmissions inside the bundle.
Center of Excellence (COE)
A high-volume program or facility for complex procedures (for example, cardiac surgery or transplants) where the employer sends members for better outcomes and tighter pricing, often with travel benefits.
TPA (third-party administrator)
The administrator that runs eligibility, claims adjudication, accumulators, and some member services for a self-insured plan. A TPA has to configure and support the mechanics of any direct contract.
Stop-loss
Reinsurance that protects a self-insured employer from very high individual claims (specific stop-loss) or unusually high total claims (aggregate stop-loss). Direct contracts change claim patterns but do not replace stop-loss.
Upside risk
Contract structure where a provider can earn more than base payment if they beat agreed cost or quality targets, but is not penalized below base rates if they miss.
Downside risk
Contract structure where a provider can earn less than base payment if costs or outcomes are worse than agreed targets, usually within defined corridors and caps.
Joint operating committee (JOC)
A recurring governance meeting between employer and provider (and often TPA/platform) that reviews performance, resolves operational issues, and makes decisions about scope changes in a direct contract.
High-cost outliers
Claims that are dramatically more expensive than peers for the same service and concentrated in a small number of providers or settings. Often the first target for narrow, surgical direct contracting.
Site-of-care optimization
Steering services (like infusions or imaging) from high-cost settings, such as hospital outpatient departments, into lower-cost but appropriate settings like freestanding centers or physician offices.
Narrow network (within a direct contract)
A defined, smaller set of facilities or clinicians the employer steers to within a market because they hit the right mix of cost, access, and quality for the direct contracting strategy.
Stay on top of new terms and deals
Every Friday, we break down the new direct contracts, platform launches, and market moves in language CFOs and benefits teams can actually use.