Health systems and hospitals are increasingly being confronted by challenges that make their partnerships with traditional insurance companies cumbersome and costly. Complex payment structures, growing administrative demands, and restrictions on how they provide care are leading many health systems to seek alternatives to improve their operations, provide better care, and secure more predictable revenue streams.
One of the most promising solutions gaining momentum is direct contracting, a model in which health systems partner directly with employers and bypass traditional insurance companies altogether.
For health systems, this approach opens doors to a number of benefits and offers them a chance to reimagine their role in delivering healthcare and build stronger, more mutually beneficial relationships with employer groups.
The challenges with traditional insurance companies
For many health systems, the standard approach of working through large insurance companies is starting to show its cracks. Despite bridging the gap between employers and healthcare providers for years, the insurance model comes with a host of inherent limitations:
- Limited control over patient care. One of the primary frustrations for health systems when they work with insurance companies is the lack of autonomy over patient care. Traditional insurance models often force providers to adhere to strict guidelines and restrict which services are covered. Decisions about care are often delayed, overridden, or denied entirely based on insurer policies. All this can have a significant impact on the quality and timeliness of care that patients receive.
- Unpredictable and delayed payments. Working through traditional insurance often means dealing with complex, lengthy reimbursement schedules. Payments can be delayed and the amount reimbursed might vary depending on factors set by the insurer. This variance can create financial strain for health systems because it complicates the process of planning and forecasting revenue effectively.
- Administrative burden and added costs. Working with major insurance companies comes with significant administrative demands, including dealing with preapprovals, complying with complex billing codes, and managing mountain of time-consuming processes. This requires significant staff time and resources, adding to operational costs, which in turn can impact the cost of care for patients. Dealing with insurer policies can create inefficiencies in patient care, leading to longer wait times, treatment delays, and dissatisfaction for both providers and patients.
Given these challenges, health systems are increasingly exploring alternatives to the traditional insurance model. This is where direct contracting comes in as a solution that addresses all these pain points and offers a more sustainable path forward.
What is direct contracting?
Put simply, direct contracting is a model in which health systems establish agreements directly with employer groups to provide healthcare services to their employees. These agreements allow health systems to take on the role of both provider and insurer, offering tailored care to employer groups’ employees in exchange for a set payment or capitated rate. This model offers health systems additional flexibility, more autonomy, and the opportunity to provide more customized, high-quality care.
Key benefits of direct contracting for health systems
The concept of direct contracting in healthcare is not new, but it’s gaining renewed attention as more health systems and employers alike seek ways to improve care quality, reduce administrative burdens, and find more cost-effective solutions for healthcare. Here are three main reasons why direct contracting is becoming increasingly attractive:
Improved revenue stability and growth
A significant benefit of direct contracting is the potential for increased and more predictable revenue. Traditional insurance models often create financial uncertainty as a result of lags in reimbursement and unwieldy billing processes. Direct contracts, in contrast, bring a reliable stream of patients through employer groups and offer health systems a more stable and consistent patient volume.
This predictability ultimately translates into financial stability. Because the health system is entering into a contract with a known entity — the employer group — they can anticipate the volume of patients, understand their health risks, and set payment structures that better match their care delivery costs. Plus, health systems often receive payments more promptly than insurance reimbursements, which improves cash flow.
As more employers seek direct partnerships with health systems, the market opportunity for revenue growth expands. Health systems that establish a strong reputation for high-quality care through direct contracts have the potential to attract more employer groups and subsequently grow their market share and patient base.
Enhanced control over patient care
Direct contracting also gives health systems greater control over how they deliver care. Traditional insurance models require health systems to adhere to the insurance company’s policies, which can restrict what care can be provided, when, and under what circumstances. This can result in less than optimal patient care and can strain the provider-patient relationship.
With direct contracts, health systems can make care decisions based on what is best for their patients without the interference of a third-party insurer. This allows health systems to focus on preventive care, patient-centered treatment plans, and better health outcomes. It also allows for greater specificity in care delivery, as health systems can implement new technologies, care models, or treatment options that align with patient needs without having to obtain insurer approval.
This flexibility and patient-first approach improves the overall quality of care while also increasing patient satisfaction and trust in the health system, leading to stronger relationships between health systems and their patients.
Competitive positioning and market differentiation
The healthcare market is becoming increasingly competitive. Major insurance companies, retail pharmacies, and even technology companies are looking to step into the realm of patient care. Health systems need to find ways to stand out and secure their market position, and direct contracting provides an opportunity for differentiation by offering employer groups a refreshing alternative to the inefficiencies of traditional insurance-based healthcare.
By establishing direct relationships with employers, health systems can foster loyalty, gain a predictable patient volume, and potentially expand their reach into new markets. This strategic positioning helps health systems protect and grow their market share and enhances their brand as a forward-thinking, patient-centered provider.
The move toward direct contracting also aligns with broader trends in the healthcare industry, such as the shift toward value-based care and personalized treatment. Offering employer groups tailored care solutions that focus on transparency, efficiency, and health outcomes positions health systems as leaders in delivering high-quality and cost-effective care.
What to look for in a direct contracting solution
For health systems considering direct contracting, it’s important to find a solution that aligns with their goals and operational capabilities. Here are key factors to consider:
- Comprehensive Third-Party Administration (TPA) Services. Partnering with a robust TPA can simplify the transition to direct contracting, claims processing, member support, and other administrative tasks. A strong TPA partner ensures smooth operations and a positive experience for both health systems and employer partners.
- Advanced healthcare management tools. Technology plays a significant role in direct contracting success. Health systems should look for solutions that offer data analytics, care management, and patient engagement tools to enhance care quality, keep operations organized, and reduce costs.
- Customizable plan design. Flexibility is a huge asset in direct contracting. Health systems should look for solutions that allow them to tailor plan designs to meet the unique needs of each employer group, considering factors such as workforce demographics, business goals, and geographic location.
- Focus on transparency and value-based care. Employers want cost-effective healthcare without sacrificing quality. Health systems should emphasize transparent pricing, outcomes-based care, and innovative approaches to improve patient health while managing costs effectively.
Shaping the future of healthcare
Direct contracting offers health systems an opportunity to redefine their role in healthcare delivery and build stronger partnerships with employer groups. Embracing the direct contracting model gives health systems the ability to enhance their market position, increase revenue, and deliver higher-quality care.
Brighton is ready to help you make the shift to direct contracting. We provide comprehensive solutions tailored to your health system’s unique needs, including advanced TPA services, customizable plan designs, and transparent, value-based care approaches.
Connect with Brighton today to explore how direct employer partnerships can help your health system grow, improve patient outcomes, and achieve greater financial stability.