Evergreen explainer
What is direct contracting in healthcare?
Direct contracting is when a self-insured employer negotiates directly with a hospital, physician group, surgery center, or care platform instead of relying entirely on a carrier’s network and pricing stack. The goal is simple: lower total cost of care, tighter steerage, and better control over what the employer is actually buying.
Traditional model
Direct contracting model
What it is
The employer sets up a direct reimbursement arrangement with the provider. That can mean a custom fee schedule, a bundled payment, a center-of-excellence contract, or a steerage program tied to defined service lines. In every version, the employer is closer to the care delivery economics than it would be in a fully intermediated PPO arrangement.
How it works
- 1. The employer identifies a market, population, or service line where cost or quality is out of line.
- 2. The employer, TPA, or platform negotiates directly with a provider or curated network.
- 3. The contract defines pricing, payment timing, eligibility, navigation, and performance terms.
- 4. Members are steered into that pathway through benefit design, incentives, or plan communications.
Who it’s for
Self-insured employers are the natural audience because they actually absorb the claims cost. Roughly 67% of covered workers in the employer market are already in self-funded plans. That means a large share of employers already carry the financial risk, even if they have not yet pulled pricing control closer to the company.
The key players
Cost Plus Wellness is pushing the market forward by publishing contract artifacts openly. Northwell Direct gives employers a health-system-led option with local depth. Lantern built a strong steerage and centers-of-excellence model. PBGH remains a major employer coalition voice. Regional TPAs and benefits consultants still matter because they translate a contract into an operating model.
Benefits
- Lower unit cost when the employer brings steerage and faster payment to the table.
- Better visibility into actual reimbursement terms.
- Stronger alignment on quality targets and service guarantees.
- Less dependence on carrier black-box pricing logic.
Risks
- Narrower access if the contract and navigation model are not designed well.
- Administrative lift for steerage, claims handling, and member communication.
- Overpromising savings before utilization and referral patterns actually change.
- Weak provider performance language can turn a “direct” contract into a branding exercise.
How to get started
- 1. Pull claims data and identify the highest-cost markets or service lines.
- 2. Decide whether you need a regional system partner, a national platform, or a centers-of-excellence model.
- 3. Push the economics first, not the story. Payment timing, quality guarantees, and steerage rules matter more than the press release.
- 4. Build the employee communication model before go-live. Confusion kills steerage.
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