What Is Employer Healthcare Direct Contracting? The Complete Guide (2026)

Employer healthcare direct contracting is a strategy used by self-insured employers, union funds, health plans, and purchasing groups to contract more directly with hospitals, physician groups, surgery centers, primary-care practices, or specialty networks.

The goal is usually straightforward: get closer to the actual price and delivery of care instead of relying entirely on a broad carrier network to determine both.

Before going further, one distinction matters for searchers.

This is not the old CMS Direct Contracting model

Google still associates the phrase "direct contracting" with the former CMS Global and Professional Direct Contracting (GPDC) Model for Traditional Medicare.

That is a different topic.

CMS says the GPDC model operated for performance years 2021 and 2022 and was redesigned and renamed ACO REACH beginning in 2023. CMS also canceled the separate Geographic Direct Contracting model.

DirectContract focuses on employer-sponsored healthcare direct contracting: arrangements where an employer, self-insured plan, union fund, health plan, or intermediary creates a direct or substantially direct commercial relationship with providers.

CMS source: Global and Professional Direct Contracting Model

Why employer direct contracting matters

Most workers covered by employer health plans are already in arrangements where the employer ultimately bears significant claims risk.

KFF's 2025 Employer Health Benefits Survey found that 67% of covered workers were enrolled in self-funded plans, including 80% of covered workers at firms with 200 or more employees.

That means many employers are already paying the healthcare bill. Direct contracting asks a second question:

If the employer carries the risk, should it also have more control over the price, provider relationship, and member pathway?

KFF source: 2025 Employer Health Benefits Survey

What employer direct contracting actually is

At its simplest, a direct contract is an agreement that gets the buyer of healthcare closer to the provider delivering it.

The counterparty does not always have to be the employer's legal entity. In practice, the contracting buyer may be:

• a self-insured employer,
• a union or Taft-Hartley health fund,
• an employer coalition,
• a group captive,
• a TPA or benefits platform acting for employer clients, or
• a health plan creating a direct employer-sponsored pathway.

The provider side may be:

• a health system,
• a hospital,
• a physician group,
• an ambulatory surgery center,
• a direct primary care practice,
• a specialty provider network,
• a center-of-excellence network, or
• a virtual or home-based specialty provider.

That is why DirectContract tracks more than one contract shape. The market is broader than a single bilateral employer-hospital agreement.

Common direct-contract models

Custom fee schedules

The employer or its intermediary negotiates reimbursement directly with a provider. The rate may be a fixed fee schedule, a percentage of Medicare, a percentage of billed charges, or another defined methodology.

Bundled or case rates

A single price covers a defined episode such as a joint replacement, imaging procedure, maternity episode, or other service line.

Direct primary care

The employer pays a recurring fee for access to primary care, often with low or zero member cost sharing.

Centers of excellence

The employer or platform contracts with selected high-performing providers for high-cost procedures or specialty care and builds navigation or incentives around those providers.

Direct-to-employer health-system networks

A regional health system creates an employer-facing network product or contracting channel for self-insured companies and funds.

Transparent cash-pay or Medicare-indexed networks

Some newer models publish provider contract terms, use direct cash-like prices, or tie reimbursement explicitly to Medicare rather than carrier-negotiated commercial rates.

How this differs from a traditional PPO

In a conventional self-funded PPO arrangement, the employer funds claims but typically rents access to a carrier or network's negotiated provider contracts.

The carrier or network usually controls:

• the provider contract,
• the negotiated rate structure,
• credentialing and network participation,
• much of the claims-routing logic, and
• the broad network strategy.

The employer may have claims data and some plan-design control, but it is several layers removed from the provider reimbursement agreement.

Direct contracting changes that relationship. It does not necessarily eliminate the TPA or carrier infrastructure, but it creates a specific contracted pathway that the employer can evaluate on its own economics and outcomes.

How direct contracting works in practice

A typical employer direct-contracting process looks like this:

1. Identify the cost problem. Use claims data to find markets, providers, or service lines where spend is concentrated.
2. Define the target population. Determine how many members can realistically use the provider or pathway.
3. Select the contracting model. Fee schedule, bundle, DPC membership, COE rate, Medicare index, or another structure.
4. Align administration. Make sure the TPA, eligibility system, stop-loss carrier, navigation vendor, and provider can operationalize the arrangement.
5. Build steerage. Lower member cost sharing, navigation, communications, scheduling help, or other incentives make the pathway usable.
6. Measure performance. Track unit price, utilization, access, quality, leakage, member experience, and total cost.

A direct contract is not just a lower rate. It is an operating model.

Real examples in the DirectContract tracker

The live DirectContract database now contains employer, fund, platform, and provider arrangements across several models.

Examples include:

• Penn Medicine / Aramark — a named employer-provider arrangement.
• Deaconess Health System / Jasper Holdings — an Indiana direct-to-employer case tied to the Patoka Valley Health Cooperative.
• Northwell Direct / ClearPoint Health — a provider network offered into a self-insured employer group-captive channel.
• ProMedica Health System / Nomi Health — direct provider access for self-insured employers in Northwest Ohio and Southwest Michigan.
• Cost Plus Wellness provider network — transparent direct-provider contracting with published contract artifacts and Medicare-indexed or negotiated terms.
• Hint Connect / Dupré Logistics — a direct primary care network implementation for a multi-state employer.
• Tendo / Transcarent — a direct-contracted specialty and surgery network distributed through an employer and health-plan platform.

These are different structures, but they all move the employer-sponsored buyer closer to the provider economics than a generic broad-network arrangement.

Explore the Direct Contract Deal Tracker for the underlying source evidence.

Direct contracting vs. reference-based pricing

They overlap, but they are not the same.

Reference-based pricing (RBP) typically sets a reimbursement methodology — often tied to Medicare or another reference — without necessarily having a negotiated provider contract for every claim.

Direct contracting generally involves an affirmative provider agreement or network relationship.

A direct contract can itself use a Medicare-based rate. In that case, reference pricing is the rate methodology inside the contract, not a substitute for the contract.

See: Reference-Based Pricing Explained

Direct contracting vs. centers of excellence

A center-of-excellence program is usually narrower. It focuses on selected procedures or conditions and may include travel, navigation, quality criteria, and bundled pricing.

A direct contract can be broader — primary care, a regional health system, imaging, specialty drugs, behavioral health, or a multi-service network.

Many COE programs are still a form of direct contracting when the employer or its platform has negotiated a specific provider relationship for employer-sponsored members.

Who direct contracting is best suited for

Direct contracting is most naturally suited to self-insured employers and funds because they directly benefit from lower claims cost.

It tends to be most actionable when:

• spend is concentrated in a market or service line,
• there is enough member volume to matter,
• the employer has access to usable claims data,
• the provider has a reason to offer better economics or access,
• the TPA can administer the contract cleanly, and
• member steerage is realistic.

Large national employers can use direct contracting, but regional employers can sometimes have an advantage because their employee population is concentrated enough to create meaningful local volume.

What employers should negotiate

The rate is only one piece of the deal.

A strong direct contract should address:

Pricing methodology

Is the rate fixed, bundled, Medicare-indexed, percentage-of-charge, or based on another benchmark? What services are included and excluded?

Payment timing

Providers may accept lower rates in exchange for cleaner eligibility and faster payment. Define the mechanics.

Member cost sharing

If the goal is steerage, the plan design must make the contracted pathway visible and economically attractive to employees.

Access standards

How quickly can members get appointments? Are dedicated scheduling channels available?

Quality and outcomes

Which measures are reported, how often, and who validates them?

Data rights

Can the employer see utilization, unit cost, outcomes, and leakage? A direct contract without usable data is difficult to manage.

Contract duration and termination

Define renewal mechanics, rate escalators, termination rights, and what happens to members already in an episode of care.

Where programs fail

They negotiate a rate but not steerage

A 30% better price produces little value if members continue using the legacy network.

The TPA cannot administer the arrangement cleanly

Eligibility mismatches, claims edits, and network-routing problems can erase goodwill quickly.

The employer compares unlike savings numbers

Per-episode savings, percentage-of-Medicare rates, annual employer savings, and avoided-network markups are different metrics. They should not be added together as though they are one number.

The provider relationship is not operationalized

Direct access should mean something: scheduling, reporting, escalation, and accountability.

How to get started

1. Pull claims before taking vendor meetings

Start with the cost problem, not the solution category.

2. Find one winnable market or service line

Orthopedics, imaging, primary care, infusion, and high-cost regional systems are common starting points because they offer identifiable utilization and pricing opportunities.

3. Decide who owns administration

Your TPA, consultant, navigation platform, or internal team needs a clear role before the contract goes live.

4. Model savings using the actual rate basis

Compare the direct contract against paid claims or a credible benchmark. Do not rely on a generic vendor savings percentage.

5. Design the member experience

A member should know where to go, why the pathway is better, what it costs, and who helps when something goes wrong.

The bottom line

Employer healthcare direct contracting is not the old CMS Direct Contracting model.

It is a commercial purchasing strategy for employers, funds, plans, and their intermediaries to create more direct provider relationships around price, access, quality, and care delivery.

For self-insured employers already carrying the financial risk, the strategic question is increasingly simple:

Are you comfortable renting every provider contract through a broad network, or are there parts of healthcare you should buy more directly?

DirectContract exists to make those arrangements visible — including the provider, buyer, geography, service model, reported economics, contract terms, and source provenance.

Browse the live Direct Contract Deal Tracker.

Primary sources

• CMS: Global and Professional Direct Contracting Model
• CMS: ACO REACH Model
• KFF: 2025 Employer Health Benefits Survey