Is your health system ready to launch direct contracting?

As healthcare costs continue to rise, many self-insured employers and other healthcare purchasers are considering direct contracts with local health systems. For a purchaser with a large, locally based population, direct contracting presents an opportunity to collaborate and innovate with healthcare providers to reduce costs and improve care. For providers, working directly with a purchaser can mean more patients and the chance to experiment with sophisticated payment models on a limited scale.

However, not every provider is prepared to manage population health, complex cases, and help patients navigate their care. Through interviews with providers who have sustained success in direct contracting, Catalyst for Payment Reform, with support from the Commonwealth Fund, explored the demands of working directly with purchasers without the intermediary of a health plan. With surprising unanimity, healthcare providers agreed that the “right stuff” for direct contracting breaks down into two components: the health system’s technology and capabilities, and its culture and strategy.

Technology and capabilities

Without a health plan as intermediary, providers must assume new roles and responsibilities to fill the gap. What’s more, direct contracting arrangements typically include shared financial accountability for outcomes, requiring providers to up their game in managing population health and total cost of care. Health system leaders pointed to the following as foundational to success:

• Infrastructure for population health management that includes uniform, interoperable IT systems, internally housed utilization management, and robust care management capabilities

• Support for patients, such as help navigating their care journey, access to after-hours care, and integration with employers’ onsite clinics

• History of success in value-based contracts–particularly those that include financial risk

Culture and strategy

While important, technology and infrastructure alone are insufficient attributes for success under a direct contract. Provider organizations must also foster a culture that aligns interests and incentives across clinicians and administrators. Providers cited the following as indicators of a strong health system partner, capable of sustaining a successful direct contract with an employer or other healthcare purchaser:

• Willingness to curate the provider network, holding individual physicians and facilities accountable for outcomes

• A culture that supports transparency and accountability with well-honed processes for identifying and solving problems

• Acommitment to healthier patients, rather than full hospital beds

The “right stuff” for purchasers

Direct contracting is a two-way street, and healthcare providers should be selective in their choice of purchaser partners. Beyond being large, local and self-insured, purchasers ideally possess the following characteristics:

• Familiarity with their own plan members, including areas of highest spending (e.g., maternity, orthopedics, oncology); current and historic utilization patterns; differences in risk profile and illness burden between salaried and hourly workers; and analysis of past programs or collaborations and insights into why they succeeded or fell short

• Clear goals established at the outset so that the purchaser and provider share a mutual understanding of success

• Willingness to drive business to the provider partner, through tactics like benefit design, mandatory selection of a primary-care provider, and active annual enrollment

• Robust employee communications to encourage enrollment and emphasizing advantages like lower employee cost sharing, high-quality care and an improved care experience

Direct contracting can be a win-win for providers and purchasers, bringing both together toward a common goal of offering higher-value care to plan members and their families. But for it to work (and there are plenty of examples where it hasn’t) both parties must come to the table with the right capabilities, culture and commitments. It might feel like a moon shot, but when done right, direct contracts between purchasers and providers not only benefit both parties, but also the most important party of all–the patient.