According to a recent report from PwC’s Health Research Institute, healthcare costs are projected to increase by as much as 8% in 2025. These rising costs are driven by a variety of factors, including workforce shortages, the increasing burden of chronic diseases, and the persistent impact of delayed care. Health systems are feeling the pressure from all angles, from their payer contracts to labor expenses, and are searching for new ways to optimize their financial performance while still delivering high-quality care.
Employers, on the other hand, are struggling to manage ballooning healthcare costs, which are now one of their largest expenses. As insurance premiums increase, along with out-of-pocket charges for employees, many employers are reconsidering their relationships with traditional health insurers and looking for more transparent and cost-effective ways to offer health benefits. This is where direct contracting comes in.
The appeal of direct contracting for health systems
Direct contracting allows employers to bypass traditional health insurance companies, negotiating directly with health systems to establish provider networks and care delivery arrangements for their employees. These collaborations are not only cost-effective but also provide an opportunity for health systems to play a more significant role in care management and patient outcomes.
One of the primary advantages of direct contracting is financial predictability. Traditional payer contracts often come with complex negotiations, varying reimbursement rates, and delays in payment. By establishing a direct contract with employers, health systems can secure a stable, predictable revenue stream, often through bundled payments, capitation, or value-based arrangements that are easier to manage than traditional fee-for-service models. This predictable cash flow can help health systems budget more effectively and mitigate financial risks.
Another advantage of direct contracting is the ability to deliver more specialized care. Health systems are uniquely positioned to deliver high-quality care and manage patient outcomes effectively, but when care is filtered through the lens of a traditional insurer, the process often becomes cumbersome. Direct contracts allow health systems to work closely with employers to design tailored care delivery models, care coordination programs, and wellness initiatives that align with both the employer’s needs and the health system’s care capabilities. This level of collaboration creates better patient outcomes and greater control over the overall care experience.
Finally, direct contracting allows health systems to form close partnerships with large employers in their region, helping to establish and expand a stronger market presence and to differentiate themselves from competing health systems and insurers. When health systems successfully deliver quality care at lower costs through direct contracts, they become a preferred partner for additional employers seeking to offer attractive benefits to their workforce.
Why is demand for direct contracting growing?
Several factors are converging to drive the increased interest in direct employer-health system collaborations.
- The healthcare cost surge. As highlighted earlier, the anticipated rise in healthcare costs by up to 8% in 2025 is causing both employers and health systems to explore cost-saving measures. Traditional insurance models often have hidden fees, making it challenging for employers to predict costs and for health systems to optimize care delivery. Direct contracting can mitigate some of these challenges by fostering transparent relationships in which both parties are invested in reducing costs and improving health outcomes.
- The push toward value-based care. The transition from fee-for-service to value-based care has been a central theme in healthcare reform, emphasizing quality over quantity. Direct contracts between health systems and employers are often aligned with value-based care principles, such as risk-sharing arrangements, bundled payments, and care coordination. This shared focus on quality and efficiency benefits all stakeholders — employers, health systems, and employees — and helps accelerate the transition to value-based models.
- Greater emphasis on employee health and well-being. Employers are increasingly recognizing the importance of employee health as a driver of productivity, satisfaction, and retention. Working directly with health systems allows employers to create benefits packages that promote preventive care, wellness programs, and chronic disease management, leading to healthier employees and lower long-term healthcare costs. Health systems can leverage this demand to develop care models and population health strategies that benefit both the employer and their workforce
Real-world examples of direct contracting success
Direct contracting is already being implemented successfully across the country. For example, Boeing, one of the largest employers in the U.S., has established direct contracts with health systems like Providence Health & Services and Mercy Health. These arrangements, known as “ACO Plus,” are designed to provide high-quality coordinated care to employees while driving cost savings for both Boeing and the participating health systems.
Similarly, Intel has developed a direct contract partnership with Presbyterian Healthcare Services in New Mexico. This model focuses on value-based care delivery and has shown improved health outcomes for Intel employees as well as cost reductions for the company. Bronson Healthcare in Kalamazoo, Michigan, has joined a growing care network across the state that aims to help companies with self-funded benefits save money through direct contracting.
These success stories are examples of how direct contracting can create a win-win scenario for health systems and employers.
Building stronger partnerships: how direct contracting can drive sustainable success for health systems and employers
As health systems face increasing financial pressures and employers seek more sustainable and transparent approaches to healthcare costs, direct contracting emerges as a promising solution that aligns the interests of both parties. By fostering closer relationships with employers, health systems can stabilize revenue streams, streamline care delivery, and enhance patient outcomes. For employers, direct contracts provide a more manageable and cost-effective way to offer health benefits that prioritize employee wellness and drive long-term savings. This collaborative model represents a growing opportunity for health systems to differentiate themselves and build long-term partnerships in their communities.
If you’re a health system leader looking to explore the benefits of direct contracting or understand how to successfully implement these partnerships, Brighton is here to help. Our team of experts can guide you through the process, offering tailored strategies to maximize your financial performance while delivering exceptional care.
Contact Brighton today to learn how direct contracting can transform your healthcare delivery and drive lasting success.