Is Your Health System Ready for Direct-to-Employer Contracting? Four Keys to Success

Editor’s note: Christopher McBride, Vizient Principal, also contributed to this post, which was originally published on Sg2’s parent company Vizient Inc’s blog.

What do Boeing, General Electric, Lowe’s and Walmart have in common? They are among a growing number of self-insured employers bypassing traditional benefit networks offered by insurers and instead contracting directly with health systems to deliver health care services to their employees.

Rising health care costs along with employers’ focus on improving quality and increasing patient engagement are key drivers fueling the growth of direct-to-employer contracting. Employers want access to data that helps them better understand quality, cost and patient experience as they consider provider network agreements for their employees.

Willis Towers Watson estimates that most employers (90%) are offering high performance networks, and over half (53%) are offering access to Center of Excellence within their group health plans. Given the rapid growth projection for direct-to-employer contracting, health systems should begin to evaluate their ability to step into this growing trend. Those that do stand to become the go-to providers in their respective markets.

Keys to success

Lists 4 keys to success with direct-to-employer contractingHealth care systems that are considering direct-to-employer contracting should understand the capabilities that it takes to be successful in these innovative programs. Here are four keys to success for health systems who are positioning for success in direct-to-employer agreements.

1. High degree of physician engagement and an aligned payment and incentive model based on performance data: Integrating high-performing physicians into a high-value network for direct-to-employer contracting arrangement is critical for program success. Physicians are a critical component of the “value equation” in that they ultimately make the decisions related to such areas as admission, appropriateness of procedure and setting, discharge disposition, and have a significant say in a hospital’s costs associated with patient management. Physicians can be either employed by the health system or independent with a professional services agreement, but it is critical that they are made aware of the new standard of care required by direct-to-employer relationships.

2. Strong performance in alternative payment models: Experience with Medicare’s bundled payment or accountable care programs will help a health care system build the “muscle” that is required to measure value, manage risk and manage clinical performance that will produce results that employers are looking for. Achieving strong performance typically also means that a health care system has invested in the infrastructure that can be leveraged across other populations, employer populations. Most employers appreciate the value of an integrated model, which emphasizes preventive care, appropriate diagnoses and care paths, care coordination and chronic condition management. Prior experience helps to smooth operational considerations and can ensure that participating physicians understand and accept the concept of reimbursement change. In addition, improving performance on quality, patient experience and cost domains within the health care system’s employee health benefit plan is a key. Most employers will want to know that the healthcare system is showing results for their efforts within their own employee health plan.

3. Expertise in analytics to identify risk, measure quality and establish market pricing: Health systems should have a strong understanding of patient populations, market pricing and quality management capabilities for the services or procedures they would offer within a direct relationship.

4. Strong relationships with local employers and their advisors: It’s important to understand local employer market dynamics. For example, how many employers are currently self-insured and are they satisfied with the status quo? What consultants and advisors are most influential?  Have there been significant discussions and evidence of a desire to move to a different reimbursement strategy that more closely aligns the hospital with the actual employer?  What is your competitive position in the market relative to other health systems? In other words, would a direct-to-employer strategy be considered an offensive or defensive undertaking? Also consider opportunities to link to health systems in different markets via a high-value network to serve employers with multiple geographic locations. This is attractive to employers with multiple locations across the country and to their beneficiaries because the greater the number of providers, the less likely it is that a patient and family member will have to travel a great distance from home in order to receive care.

Direct-to-employer contracting represents a significant opportunity for health systems to disrupt the traditional health insurance model and have a meaningful impact on populations in the communities they serve. Now is the time for forward-thinking health systems to cement their position as the preferred direct-to-employer partner in their markets.

Learn more about how Vizient can assist providers that want to participate in direct-to-employer opportunities, and reach out to Jeff Hayes ( on how to chart your own course and contract directly with provider systems.

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