Direct contracting occurs when a self-insured employer partners with a healthcare system to reimburse providers for services rendered. The employer or TPA bypasses the traditional relationship most have with an insurance company to negotiate directly with providers. Employers report that they have turned to direct contracting because they were dissatisfied with the traditional health benefit plans offered by insurers or were frustrated by a lack of transparency behind annual rate increases. Many believe direct contracting can be a useful tool for reducing costs. Direct contracting typically pays providers 150% to 180% of Medicare. We have a Center Of Excellence at .70%

To date, major medical insurers (legacy carriers), like Anthem and UnitedHealthcare, have not expressed concern with such arrangements, though some caution that direct contracting could “cut them out” of some employer-based business.

Babies are being delivered for employer's employee population at hospitals scattered around the Santa Monica, Calif., area where the company is based. "We saw that the cost of delivering a baby at one hospital was $12,000. At another, it's $26,000, with the same basic service," he said. "The one that cost $26,000 advertised its beautiful ocean view, and our people were flocking there."

The hospital administrators at the more-expensive hospital were contacted and told we don't understand what the difference is here, but we're going to start actively steering people away from your organization if you don't bring your prices down to reality. They listened, and the employer was not big having maybe 30 births at their hospital per year.

In a report released in May, Rand used claims data from employers in 25 states to show a huge variation in prices paid to specific hospitals and show a huge variation between the prices paid by employers to those facilities and how much Medicare would allow for the same services.

To be sure, hospitals have long argued that Medicare doesn’t cover their costs. The Rand study found that employers paid an average of 241% of Medicare rates in 2017, but some saw rates three times those paid by the federal program or more.